Class actions – the implications for superannuation fund trustees
These days it is common to hear about class actions so we thought it would be helpful to provide a basic explanation of what’s involved.
What is a ‘class action’?
A class action involves:
- a claim of seven or more persons against the same person
- which arises out of related circumstances, and
- which gives rise to a substantial common issue of law or fact.
Class actions have been used for a wide variety of situations as there is no limit to the subject matter of class actions.
There is likely to be continued growth in the number and size of class actions in Australia given:
- class actions may be commenced with ease and run with a great degree of flexibility
- the growth in the number of commercial funders of litigation and a more liberal approach by the courts to litigation funding, and
- the ability of a large number of persons to bring an action following an admission of guilt by an entity or a successful prosecution of an entity by a regulator, such as APRA or ASIC.
The rise of class actions is significant for trustees in two ways—firstly, if a class action is brought against the trustee by members of the superannuation fund, and secondly, if the trustee has the option to join a shareholder class action.
Class actions against the trustee
If a trustee is faced with a class action by fund members, the trustee will require an expert understanding of how the matter will proceed under the relevant court rules. These proceedings are not necessarily run in the same way as other proceedings.
Particular care needs to be taken, given the potential for growth in the number and value of the claims involved in a class action. Based on our experience, class actions against super fund trustees would be most likely to occur in the areas of disclosure and investment performance.
Class actions by the trustee
On the other hand, trustees of superannuation funds can join as a plaintiff in shareholder class actions.
Recent shareholder class actions in Australia have involved the following elements:
- a class of shareholders who have all purchased shares during a particular period of time
- allegations of corporate misconduct arising out of statements made by, or failed to have been made by, the company to the market
- loss or damage incurred by the shareholders, and
- a causal connection between the alleged misconduct and the loss or damage to the shareholder. This aspect has usually required the shareholder to prove specific reliance on the alleged misconduct in entering the share purchase transaction. However the requirement of reliance has been the subject of recent judicial review and consideration.
A trustee may have the opportunity (or need) to participate in a class action against a company in which it holds shares.
Whether, and how, the trustee participates in a class action will involve careful consideration of the facts of the particular claim, the trustee’s duty to the members of the fund and the mechanics of the particular class action.
More information
For more information please contact the Superannuation Partners.