Key Points:
For those who are potentially exposed to GFC-related
litigation, now is the time to get litigation-ready. Decisions made
today will affect how their litigation plays out in six months'
time.
While many are taking a deep breath and relaxing that the worst of the GFC is over, the fallout for many in the financial services world is just beginning, which could result in a rise in litigation.
Aggrieved investors or creditors will look for someone to blame, and when a company collapses they start looking around for someone with deep pockets - and liquidators and regulators won't be far behind them.
Add to that the rise of litigation funders (assuming they can overcome the recent Full Federal Court decision in the Brookfield Multiplex case), increased regulator activity, and more retail investors than ever before who can form part of the pool of potential plaintiffs for the litigation funders, and you could have an increase in litigation matters in this country.
We think the floodgates will soon open up. For example, now that the Full Federal Court has held that the Lehman Brothers Deed of Company Arrangement is invalid, we expect there to be more litigation against Lehman Brothers.
So who are the likely targets? The answer is almost anyone with deep pockets who had professional dealings with these failed companies, or with those who invested in them.
This can include targets such as financial planners who recommended investments in failed companies, auditors, and directors of the failed companies, but can also extend to retail or investment banks, insurers, superannuation trustees, and ratings agencies.
The allegations might seem straightforward - negligence, misleading and deceptive conduct and breach of contract - but as we found when acting for Lehman Brothers in its CDO litigation, you need a deep understanding of the financial products and the circumstances in which they are structured, marketed and traded.
For those who are potentially exposed to such litigation, now is the time to get litigation-ready. Decisions made today will affect how their litigation plays out in six months' time.
Ideally, as a starting point, they should be reviewing their potential exposure, and their past and present conduct.
Realistically, most defendants fail to act until actually served with a writ. As most defendants are unprepared at this time, it becomes easy to lose sight of key issues - issues such as what were investors told about the risks, as well as benefits, of these products? Were investors tempted by visions of unrealistic returns?
Potential defendants should also be careful not to do anything which could compromise their defence. This might include making unhelpful admissions about wrongdoing or their practices. Or it might entail accidentally waiving legal professional privilege in documents in the rush to talk up the vigorous defence which will be filed. Such concerns may be especially relevant if a regulator is also involved, as they have extensive investigative powers by which they can compel the production of relevant documents. These documents could be used as the basis for further civil action from unhappy creditors and investors.
Even as the economy improves, the fallout from the financial services world may continue for some years to come.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.