For those who follow U.S. securities litigation—most importantly, non-U.S. companies who follow U.S. D&O litigation—the June 2010 Supreme Court decision in Morrison v. National Australia Bank Ltd. was seen as a tremendous win for the foreign defendants, as it sharply limited the potential extraterritorial reach of U.S. securities legislation:
Section 10(b) [fraud provision] does not provide a cause of action to foreign plaintiffs suing foreign and American defendants for misconduct in connection with securities traded on foreign exchanges.
Morrison: Seek Remedy at Home
It told non-U.S. shareholders who had purchased shares of non-U.S. companies on non-U.S. stock exchanges (commonly referred to as “F-cubed cases”) to in essence go home and seek available remedies in their local jurisdictions rather than the U.S. (See the alert we issued at the time, F-Cubed Suits After the Recent U.S. Supreme Court Decision, Morrison v. National Australia Bank). It was a euphoric time only somewhat dampened by the Dodd-Frank Wall Street Reform and Consumer Protection Act, which gave the U.S. Securities and Exchange Commission the express power to pursue these matters in the U.S. (if U.S. shareholders or the U.S. marketplace would be affected).
Back in 2010 when the Supreme Court made its decision, an Australian was the lead named plaintiff in the U.S. suit seeking recoveries for shareholder losses allegedly due to undisclosed exposure to the U.S. subprime mortgage crisis—an Australian who had purchased shares in the Australian parent company on the Australian exchange (and not a U.S. shareholder or even a shareholder who had purchased shares or American Depository Receipts or ADRs, in the U.S.). This meant that the suit was dismissed in the U.S.
How Morrison Fared in Australia
Inquiring minds, knowledgeable about the sophistication of the Australian plaintiffs’ bar and the wiliness of the litigation funders, have wondered whether these claims might succeed down under. They need wonder no more, as the company announced today that it will pay on behalf of 15,000 shareholders, $85 million (U.S.$88.4 million) plus an additional $30 million in interest and costs in a settlement funded by litigation funders.
Litigation funding in Australia, for those not familiar with the concept, is a contractual arrangement whereby a third party (usually a corporate entity and not a legal practitioner) finances the litigation and some level of management of the dispute and, in return, if the case succeeds, receives a percentage of the settlement or court award. These arrangements have been permitted since the Australian High Court gave its approval back in 2006, in Campbells Cash and Carry Pty Limited v. Fostif Pty Ltd., 229 CLR 386.
Otherwise, Australia has “the loser pays” rule in litigation, where a losing party is liable for the other side’s costs, albeit only a portion of the costs actually incurred. Unmodified, this approach can be a strong disincentive to bring litigation, as the plaintiff, or representative party in a class action, is generally liable for the costs of their opponent if they are unsuccessful.
Back in 2010, we suggested that the outcome of the U.S. Supreme Court decision—to push litigation back to the company’s home court, or to fragment global cases—might mean having the same or similar allegations being considered in multiple jurisdictions, with potentially differing outcomes—and wouldn’t always lead to the optimal (or cost-free) result for the defendants.
That seems to be the case here, even without the flying monkeys.