Enhancing private enforcement of Australia's corporate continuous disclosure regime: why unshackling litigation funders makes eminent sense

Abstract

With a view to protecting the interests of investors in public companies more effectively, current Australian corporate law imposes on certain market participants a duty of continuous disclosure of key financial and other information concerning the business and affairs of a company. This is designed to promote transparency and, ultimately, foster a fair, efficient and competitive capital market environment. If this lofty objective is to be achieved, it is imperative that the law relating to continuous disclosure is robustly enforced. Private parties can play a significant role in this regard. By complementing the enforcement efforts of public regulatory authorities, the private enforcement process increases the chances that violations of the law will be found out and pursued. In the recent case of Brookfield Multiplex Limited v International Litigation Funding Partners Pte Ltd (2009) 27 ACLC 1610; [2009] FCAFC 147, the Full Federal Court of Australia considered shareholder class litigation facilitated by commercial litigation funders to challenge an alleged failure to observe the continuous disclosure laws. The majority made a finding characterising the actions of the class litigants, their lawyers and the litigation funders as giving rise to a managed investment scheme subject to regulation under the Corporations Act 2001 (Cth). If allowed to stand, this decision has the potential to discourage the funding of private litigation seeking to challenge suspected contraventions of the continuous disclosure regime. A reduction in private enforcement is, in turn, likely to lead to less than optimum enforcement of the law. As well, unless reversed, the decision is likely to discourage the use of the class action procedure in proceedings seeking to enforce the law in this area. Given the important role that class actions play in resolving in one law suit the claims of numerous individuals having a common legal position, the decision is apt to undermine judicial efficiency. These are very weighty matters. In order to overcome these problems, the Commonwealth Government has announced its intention to introduce reforms to alleviate the regulatory burden introduced by the Full Federal Court. This development is most welcome. By reforming the law to remove the undesirable effects of the Multiplex decision, policy makers will serve the interests of investors and society generally better. This paper considers the impact of the Multiplex decision and explores ways in which the law can be reformed to overcome its effects.