Emerging risk landscape hots up as law firms seek opportunities

Litigation funders are travelling the world looking for fertile ground to bring claims and finding success in an increasing number of places, warns Tricia Hobson, Norton Rose Fulbright global chair and head of its Australia and Asia-Pacific insurance practice.

Speaking in London recently, she said much of the pattern of behaviour follows the US, but claimant lawyers and litigation funders are finding fertile ground in places such as Australia and South Africa.

“From personal experience, I am seeing a lot of class actions and am actually personally involved with the largest class action in Australian history, which still has another six months to run,” she said.

“It is very fertile ground in Australia for class actions, but obviously the US is leading the way in terms of approach and the way law firms behave. Law firms in the US take contingency fees of between 30% and 40%, which funds class actions,” she added.

In Australia, there is a very litigious culture, although law firms are unable to operate in quite the same way as the US, explained Ms Hobson. The Australian High Court paved the way about ten years ago for litigation funders to operate.

They now work as a team, explained Ms Hobson, so the net effect for companies and their insurers is the same. Added to that “litigation funders in Australia are essentially unregulated and there doesn’t seem the political appetite to force any change in that”, she said.

While there was just one litigation funder operating ten years ago, Australia is now home to about 20 funding firms, all competing for business.

“Generally, they will go for insured classes, because they aim for the deep pockets of the insurance industry. That is why there are so many shareholder class actions and also why the pharma sector is a target,” said Ms Hobson.

She said the funders and plaintiff lawyers will move with the times. For example, when the insurance industry changed its approach to directors and officers (D&O) cover, the plaintiff teams changed as well. That is why directors and officers are personally being targeted so often at the moment, Ms Hobson said.

“Funders will go after those with insurance behind them,” she stressed.

The emerging risk landscape is really quite fast paced and volatile, the lawyer continued. Directors need to be mindful of the growing risks they face, she added.

Discussing the likelihood of class actions spreading across the Asia-Pacific region, Ms Hobson said: “Different jurisdictions have different rules and some don’t allow funders. In contrast, in South Africa, the pattern for class actions is developing and it is an area where we see the plaintiff lawyers moving in.”

She added a note of warning, however: risk managers should not assume they are protected from class actions in Asia. “In Asia, there are funders crawling all over the region trying to find litigation opportunities. So far you don’t have audience rights in the courts in many jurisdictions, unlike in Australia, and that is holding them back,” said the lawyer.

Different cultures also play a part, she believes, noting that some Asian cultures simply do not look to apportion blame. “You see the same thing in the UK and Europe, where there is significantly less in the way of class actions,” she added.

However, there are threats on the horizon worldwide.

“When you look at cyber and the impact on D&O, you can see the plaintiff teams are looking at the US example and the court of public opinion. Think of the impact of the #MeToo campaign, which shows just how important public opinion is. It is likely that claims will follow around past discriminations. There are a whole host of potential pitfalls for companies at the moment,” she said.

Cyber remains one of the greatest threats, according to Ms Hobson. In Australia, new requirements to report data breaches came into effect in late February. “There have already been plenty of breaches throughout the past few years but now it just got tougher for the firms involved, as those breaches have to be reported. So, we expect more litigation and more class actions in that space,” explained the lawyer

As always, the US is leading the way and claims have already started there.

“If you have a data breach, you nearly always automatically have a large number of people impacted, so class actions will follow quite naturally. Even if the amounts paid out individually are quite small, the volume of people involved will make this very expensive overall,” explained Ms Hobson.

She expects to eventually see similar class actions in Australia very soon, thanks to the new rules. The new European General Data Protection Regulation (GDPR) will also have a global impact, Ms Hobson believes.

“The scary thing is that recent research in Europe suggests some 75% of companies in Europe are not prepared for the GDPR. If it is that bad in Europe, then is the rest of the world likely to be any better?” she asked.

“It is very unlikely large corporates will escape the impact of the GDPR, because they are almost certainly going to have some element of their business involved with a European entity and the reach of the regulations is long,” added Ms Hobson.