Jurisdiction - Australia
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Australia – Financial Services Disputes: What’s New?

23 June, 2014


Legal News & Analysis – Asia Pacific – Australia – Dispute Resolution


Future Trends: Global Litigation


Globalisation is a trend affecting how financial services litigation, in particular class actions, are approached globally.


In some cases, an exclusive jurisdiction or dispute resolution clause in a contract between the parties will identify in which jurisdiction proceedings must be commenced or how disputes are to be resolved. In other types of claims, say for misleading or deceptive conduct or tort, a claimant may choose in which jurisdiction proceedings are commenced provided a connection can be established with that jurisdiction. Recent developments suggest that claimants (and litigation funders) could elect a global approach to litigation.


In early 2012, the Amsterdam Court of Appeal decided an application by a group of petitioners consisting of Scor Holding (Switzerland) AG (formerly Converium Holding AG) (Converium), Zurich Financial Services Ltd (ZFS), a Dutch not-for-profit foundation (incorporated by Converium, ZFS and one of the lead plaintiffs in a US class action) (Foundation), and Vereniging VEB NCVB (VEB), a World Federation of Investors organisation. The application sought court approval of opt-out settlement agreements between Converium, the Foundation and VEB and between ZFS, the Foundation and VEB compensating for loss caused by a decline in the value of Converium shares following disclosures in the period 2002-2004 with respect to its (anticipated) financial results and the provisions to be made for this. The persons to whom the loss was caused were non-US exchange purchasers globally. The decision to approve the settlement is remarkable because Converium did not have ties to The Netherlands, the shares the subject of the settlement were traded on the Swiss stock exchange and only about 200 of over 12,000 interested parties resided within The Netherlands. At the heart of it, the Dutch court considered it had jurisdiction to decide the application and declare the settlement agreements as binding on non-US investors as the Foundation was established pursuant to The Netherland’s collective redress regime.


Fast forward to 2014 and the Dutch courts are again being approached by a group of international claimants seeking collective redress. In late 2013, a claim was lodged in the Amsterdam District Court by a Dutch foundation backed by litigation funder, Bentham IMF, representing 16 institutional investors from Germany, Austria and Switzerland seeking damages against ABN Amro NV (now Royal Bank of Scotland NV (RBS)) and ratings agency Standard & Poor’s (S&P). The claims relate to derivatives called “Constant Proportion Debt Obligations” (CPDO) that were rated AAA by S&P in the lead up to the financial crisis of 2007. In addition to the application having been lodged by a Dutch foundation, the lead manager of the CPDOs was the Dutch bank ABN Amro NV (now owned by RBS). The claim will pick up on facts, legal evidence and arguments from previous Australian proceedings against S&P (which was appealed in Australia, with judgment handed down on 6 June 2014 dismissing the appeal by S&P).


A shift to litigating multi-national claims in Europe is still untested but may be attractive for claimants and funders seeking a one-stop shop. For defendants of a global class, rather than having to defend claims in multiple jurisdictions, it may be one way to achieve a global opt-out resolution. As there are several other international GFC investor-based claims currently before the Dutch courts, it remains a case of watch this space.


Insider Trading Update 


Two recent decisions of the NSW Court of Criminal Appeal shed light on the scope of insider trading under the Corporations Act 2001 (Cth).


Khoo v R [2013] NSWCCA 323 (Khoo) reaffirmed the equal weight that the courts ascribe to the offence of tipping vis-à-vis the actual act of trading.


Fysh v R [2013] NSWCCA 284 (Fysh) analysed the core requirement of the insider trading offence of proving the materiality of alleged inside information.


Khoo v R: Tipping And Trading – Is There A Difference?


Khoo concerned a Queensland businessman who tipped off his friends with confidential information relating to significant take-over bids, including the takeover of Brisbane-based Macarthur Coal by Peabody Energy and ArcelorMittal S.A. As a result, Khoo’s friends derived profits of over AUD 100k from the purchase of shares in Macarthur Coal.


At trial, Khoo was sentenced to one year and 11 months imprisonment, to be released on recognisance after 14 months. On appeal, Khoo sought a reduction of his sentence on the basis that the offence of insider tipping is objectively less criminal than trading, as it does not involve the additional act of trading. Khoo claimed that “until there is a trade, the impact on the integrity of the market is not affected” [6]. In this vein, Khoo also sought an order that the sentence, if upheld, be served on a non-custodial nature.


The appeal was unanimously dismissed, with the Court holding that tipping is no different in its criminality to trading. The injury that is caused to the market for both acts is ultimately the same, namely “the loss of confidence in the efficacy and integrity of the market”, (quoting from the Court of Criminal Appeal’s decision in R v Rivkin [2004] NSWCCA 7 at [412]).


The appeal judges confirmed that the sentence against Khoo was within the range open to the trial judge, and that the paramount consideration of deterrence warranted a sentence of full-time custody. The appeal judges also upheld the sentence on the basis of the “deliberate criminality” [101] behind Khoo’s conduct and the fact that he committed multiple offences.


Fysh v R: Materiality Of The Inside Information


Fysh concerned an advisor at BG Group who allegedly acquired inside information in late 2007 prior to a public announcement in February 2008 of a merger with Queensland Gas Company Ltd. During the relevant period, Fysh attended two briefings on potential merger opportunities, where he was allegedly shown slides outlining sensitive financial data.

Subsequently, Queensland Gas made a public announcement outlining a major deal it had struck with BG Group, as well as a contemporaneous announcement of substantial new gas reserves it had discovered.


At trial, Fysh was sentenced to two years imprisonment, to be released on recognisance after 12 months. Fysh sought leave to appeal from his conviction on the basis that the verdicts against him were unreasonable and could not be supported by the Crown’s evidence. In other words, that it was not open to the jury to be satisfied beyond reasonable doubt that the information in question was material, in the sense that, if it were generally available, a reasonable person would expect it to have a material effect on the price or value of Queensland Gas shares.


On appeal, Fysh argued that Queensland Gas’ public announcement was not properly comparable with the inside information allegedly acquired by Fysh. At its highest, Fysh argued that the effect of the information was that in early December 2007 Fysh knew of a possibility of a deal, and that discussions were to continue into the future [159]. Conversely, the Crown argued that, taken as a whole, the particulars of information that Fysh was exposed to constituted “a pathway” to materiality [163]. The appeal was unanimously allowed, Fysh’s conviction quashed and an acquittal entered. The Court ruled that it is not proper to “reason back” from a public announcement of a listed company, and any resultant increase in share price, in order to prove that an accused has engaged in insider trading. The mere fact that a company’s share price increased after a public announcement does not confirm the elements of insider trading. Instead, the question of materiality “must be measured against both reasonableness and some knowledge of the market” [208]. Applying this approach, the Court found that it was generally known that BG Group was interested in gas production in Queensland, and that, accordingly, the information was not material.


Misleading Or Deceptive Conduct – Client Who Had Not Read The Contract


In Westpac Banking Corporation v Lee, the New South Wales Court of Appeal considered whether a claim based on alleged misleading conduct in breach of s 12DA of the ASIC Act 2010 could be successful when the claimants, who were wholesale clients, had not read the relevant contracts. Section 12DA is identical to s 18 of the Australian Consumer Law (formerly s 52 of the Trade Practices Act 1974) and applies in the context of the provision of financial services.


The case is a reminder to financial advisors to check that clients have read the relevant financial product documentation and that what they tell a client about a product, especially in comparison with another product, is consistent with those documents. The case involved the provision of a complex financial product known as a guaranteed portfolio service (GPS). This product was similar in some respects to a previous product, a protected equity loan (PEL), provided by the bank to the claimants, who had used it successfully. The claimants assumed that GPS was the same as PEL when in fact there were some important differences. It was found that conversations and correspondence with the bank reinforced this assumption. The claimants invested in the GPS just before the global financial crisis and lost some AUD 380k. They successfully claimed this sum from the bank.

The NSW Court of Appeal found that:


  • Whether a person is misled depends on an objective assessment of the particular circumstances to determine whether the claimant was led into error by the other party.
  • The relationship between the parties, including comparative knowledge and sophistication vis-à-vis the subject-matter of the contract, is one of the circumstances to be considered. A wholesale client may be relevantly unsophisticated when dealing with products unfamiliar to him or her.
  • The fact that a claimant has not read the contract (and would not have been misled if he or she had read and understood the contract), does not mean that the claimant cannot rely on communications outside the contract to make a claim based on misleading conduct.
  • The fact that the claimants were not “retail clients” of the bank for the purposes of Part 7.7 of the Corporations Act (which provides disclosure exemptions for “wholesale clients”), did not mean that the conduct of the bank in making representations about the characteristics of the GPS was not capable of being misleading.


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For further information, please contact:


Ashley Wharton, Partner, Ashurst 
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Andrew Carter, Partner, Ashurst
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Sonia Tame, Partner, Ashurst
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Mark Elvy, Partner, Ashurst
[email protected]


Adrian Chai, Partner, Ashurst
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Chris Goddard, Partner, Ashurst 
[email protected]


Jonathan Gordon, Partner, Ashurst
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Gareth Hughes, Partner, Ashurst
gareth.hug[email protected]


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