Each year, new countries debate the merits of implementing new class action or collective action procedures. Additionally, more and more cases are being filed, often in new forums where collective action mechanisms were only recently adopted and where shareholder litigation has never before been filed.
2014 was no exception to the trend of increasing global securities litigation. In 2014, Kessler Topaz’s portfolio monitoring service identified over fifty-five shareholder cases1 in non-US jurisdictions that were open for shareholder
participation. Forty of those cases were newly proposed cases, while the remaining fifteen were cases that had been proposed in previous years, but the deadline for shareholders to “opt-in” or register for the claim reopened.
Some of the cases filed or proposed in 2014 concern high profile allegations of fraud and misrepresentations (for example: Tesco in the UK and the Espirito Santo Group in Portugal), while others were much lower profile, but certainly no less significant. Some of the cases proposed in 2014 were in jurisdictions where there has never been litigation concerning securities fraud allegations (for example: Banco Espirito Santo), while others represented a growing trend in jurisdictions that are readily becoming the biggest shareholder litigation forums outside the U.S. (for example: the many cases filed in Australia and Canada). Overall, the number of cases filed or proposed in 2014 lends further credence to estimates by organizations like the GOAL Group which have reported that settlements stemming from securities actions outside the United States are expected to total $8.3 billion by the year 2020.
2014 was also a significant year in terms of legal developments around the world. Following is an overview of some of 2014’s most significant developments and cases filed and proposed in various jurisdictions.
A class action was filed against Facebook Ireland, the subsidiary of the US based Facebook, on behalf of more than 25,000 non-North American claimants. The action alleges a variety of claims stemming from concerns over Facebook’s use of consumer data as well as its alleged tracking and surveillance activities. Although this class action is not related to shareholder litigation, it illustrates a growing acceptance of class actions as an effective tool to promote access to justice around the world.
Securities fraud litigation has continued to grow, and Australia is now the number one jurisdiction, outside of the United States, where a company is likely to face litigation for violation of securities regulations. In 2014, sixteen of the announced non-US cases, representing nearly 30% of the total number of cases tracked by Kessler Topaz, were in Australia.
Australia also saw some significant legal developments regarding the structuring of its shareholder litigation. Currently, although Australia is technically an opt-out jurisdiction, the Australian prohibition on attorneys working on a contingent fee basis often means that third-party litigation funding is used, and the class is defined in a way so as to include only those investors who have registered in advance or “opted-in.” Australia has continuously grappled with the creation of regulations and parameters (such as the handling of a conflict of interest) to apply to third-party litigation funders. In 2014, Australian courts determined that Australian attorneys who have a financial interest in a litigation funder may not act as lawyers in the claims. Furthermore, 2014 also saw a court petition by an Australian law firm to create a common fund in a given securities fraud action in order allow a class action to proceed on an “opt-out” basis (where investors would automatically be included in an action and eligible to file a claim for a portion of any recovery) but still guarantee a litigation funder a payment in exchange for their funding the upfront costs and legal fees. That petition is still pending.
In March 2014, the Belgian parliament enacted a law allowing for class actions in Belgium. The law is restricted to violations of specific laws.
France’s first class action was filed on October 1st, the same day that the class action mechanism the legislature had enacted in March 2014 came into force. The class action was filed by the consumer association UFC — Que Choisir against a real estate broker and property manager on behalf of 318,000 tenants who were illegally charged $2.90 a month for rental receipts and reminders between 2009 and 2014.
Most Latin American countries have some form of class action procedure in place. As of 2014, there was new legislation to either modify or adopt a new procedure pending in Argentina, Brazil, Costa Rica, Ecuador, and Mexico.
The legislation pending in Brazil provides a good example of what these proposed reforms hope to accomplish. The system currently in place in Brazil (which also serves as a model for many other Latin American countries) does not have a class certification mechanism. Instead, the process involves two steps: the first step is to establish liability on a class-wide basis; and the second step involves establishing damages, but damages must be established in a series of individual cases. Right now there is no means to settle cases collectively. The Brazilian reform bill and other pending measures would make modifications and allow for nationwide class actions, grant political parties standing to pursue cases, and provide the judge with authority to shift the burden of proof. The proposed reforms would also provide groups with legal fees equal to no less than 20% of any recovery.
1 This figure only accounts for one action proposed or filed against a given corporation where the factual and legal allegations were similar or identical. For example, a number of actions were proposed by different law firms against Portugal’s Banco Espirito Santo, but for purposes of arriving at this figure, Banco Espirito Santo was only included as one shareholder case. Kessler Topaz also does not contend that this figure is exhaustive of all non-U.S. shareholder litigation opportunities that were made available in 2014. Although Kessler Topaz’s service is thorough and comprehensive, given the decentralized nature of finding and tracking cases in different jurisdictions, it is possible there were also some cases filed or proposed that Kessler Topaz was not aware of.