Record Settlement of Centro Case
Of even more interest to underwriters than some of the recent court decisions is the announcement that on 9 May shopping centre owner Centro and its former auditor PwC have agreed to a record $200 million settlement of a class action by shareholders. The claim centred on Centro’s mis-stated current liabilities in 2007 of more than $3 billion and was followed by the company’s report that it was struggling to refinance its debt. That report to the market resulted in a freefall in its share price, costing investors millions of dollars.
The settlement is significantly higher than the previous highest Australian settlements of $144.5 million in the Aristocrat class action and $112 million in the GIO claim. The case, launched 4 years ago, settled in the tenth week of hearing in the Federal Court. The announcement to the Court that a settlement was being negotiated resulted in trading halts not only on Centro but on IMF, the listed litigation funder backing part of the claim.
The settlement leaves unresolved critical issues in these class actions of the degree to which shareholders can rely on company announcements and the extent to which misleading announcements cause individual shareholder losses. There remains residual doubt that the Australia courts will accept “presumptive reliance” or “fraud on the market” principles allowing shareholders a cause of action without the need to prove the causation and loss by reason of wrong information to the market that would otherwise be required.
High Court Re-instates Director’s Penalties
The High Court on 3 May 2012 overturned Judgments of the Court of Appeal in ASIC v. Hellicar and Ors (2012) HCA 17 and Shafrom v. ASIC (2012) HCA 18 and found that seven non-executive directors of James Hardie Industries Limited breached their duties of care and diligence by approving a misleading announcement released to the ASX. The Court also found that the general counsel/company secretary breached his duty of care and diligence by failing to advise the CEO and the board that certain information should be disclosed to the ASX. The basis of the decision was technical in nature dealing with whether or not ASIC had met the necessary evidentiary standards and applied duties of fairness by failing to call certain witnesses.
The court expressly rejected arguments by Shafrom that his error, if any was as a legal advisor and not as an officer. They found these roles were indistinguishable and that he had breached his duty as an officer.
Damages for Late Payment
In Oakland Investments (Aus) Limited v. Certain Underwriters at Lloyds (2012) QSC 6, Underwriters had disputed part of a claim for indemnity under certain successive mortgage and indemnity impairment policies. The dispute was essentially related to the definition of “Principal Amount” the balance owing of which, after realisation of security, was payable to the insured under the policy or policies.
The insured, Oakland, argued that it was entitled to damages for the failure by the insurer to pay the undisputed amount much earlier. His Honour Applegarth J concluded,
“I find it unnecessary to conclude whether the underwriters acted with a lack of good faith in not paying undisputed amounts because they hoped to reach a resolution in relation to the entire claim. It is sufficient to conclude that their failure and refusal to pay the undisputed amounts after three months had lapsed after sale of the final security on each claim was at a time when underwriters had all of the information that they needed in order to quantify the undisputed amount of the claim and to pay it. I conclude that they breached their contract with Oakland.”
Damages were calculated on the basis of the full balance amount payable plus a simple interest calculation of 10% from the date the undisputed amount ought to have been paid.