Mike Lange, Securities Litigation Counsel, Financial Recovery Technologies

Previously we’ve written about increased competition among Australian law firms and funders for leadership in securities class actions (read our blog), and how early indications were showing that this competition was reducing fees and costs to investors.  This trend took a big leap forward when Maurice Blackburn, a leading plaintiff firm, recently announced that they and their funder, International Litigation Funding Partners, are offering registrants an unusually low funder rate of 12.5% in their suit against AMP.  Typically, funder fees range from 25% to 45%.

Competition for lead counsel positions is fierce here because observers believe AMP could be the largest Australian securities class action to date with the potential for record-setting recoveries.  Quinn Emmanuel and Phi Finney McDonald have already filed and besides Maurice Blackburn, Slater & Gordon and Shine Lawyers could also file.

AMP may prove the tip of a big iceberg.  Commonwealth Bank was sued last year and this past December, the Banking Royal Commission was launched – after years of pressure from whistleblowers, consumers, government officials, and others – to investigate malfeasance in the Australian banking sector.  Those efforts could reveal more financial scandals leading to more suits against other firms.

The court may allow only one action to proceed and stay others

A non-U.S. domiciled claimant is eligible to participate in the FOREX settlement if it entered into an FX Instrument during the January 1, 2003 to December 15, 2015 Class Period and that transaction was (a) on a US Exchange, (b) directly with a Defendant including the Non-Settling one; or (c) through an electronic communication network (ECN).

Australian courts have been signaling a preference to select one law firm to prosecute a securities case, staying all other actions and effectively ending them.  When choosing which law firm will lead, courts focus on several factors including the size and composition of the investor groups they represent.  With the potential for an all or nothing leadership outcome, AMP organizers are pulling out all the stops to attract as many claimants as possible to their groups.  The prospect of lower fees goes a long way in ‘book building’ efforts.

Maurice Blackburn says it will also seek cost orders from the court.  In other words, if successful, the law firm will try to get its fees and costs paid directly by the defendants.  As in most countries outside the US, the Australian legal system uses adverse party cost shifting by which the losing party can be ordered to pay some or all of the victor’s legal fees and costs.

All these factors – lower funder fees, seeking legal fees/costs from defendants, and potentially a larger investor group – would make Maurice Blackburn more attractive to the court as a lead counsel applicant and increase its chances for appointment and control of the AMP litigation.

What this means for investors

In AMP, we expect other organizers to lower their funder fees to come closer to those offered by Maurice Blackburn.  If you have not already registered, choosing among the competing law firms should certainly include a comparison of their proposed funding terms.

Beyond AMP, we expect to lower funder fees in future cases, particularly those with larger prospects for recovery.  There are also efforts underway to remove the prohibition on Australian lawyers representing clients on a fully contingent basis.  If that happens, law firms will choose to fund some cases themselves – as they do in the US – reducing the need for funders and further squeezing their margins.

Investors with large losses should consider all competing organizers and shop for the best representation terms.  Groups can combine losses and use their increased leverage to negotiate even better terms, particularly if negotiations occur early and before preparation of registration documents.  Larger investors may also consider adding terms including ‘most favored nation’ clauses and the right to withdraw from one group to join another offering lower fees if the funder won’t match them.

Conclusion

In sum, the more competitive Australian securities class action landscape gives investors the opportunity to realize lower fees and better terms, and to keep more of the money recovered on their behalf.