ABC faces tough fight in Christian Porter defamation case

Until Josh Frydenberg acted decisively last year, that deadly combination of factors had brought this form of litigation into disrepute. Together, they meant business had become the whipping boy for enterprising lawyers.

It was money for jam. Everyone knew the rules on continuous disclosure had long been rigged against business in a way that left Australia out of step with corporate regulation in the US and Britain.

It should therefore come as no surprise that most anti-business class actions concern continuous disclosure — the obligation on companies to immediately disclose market-sensitive information. Yet, until last May, nothing was done to restore the rigour of this law.

At the height of the pandemic, with economic armageddon in prospect, the Treasurer used a temporary regulation to bring the rules back in line with the approach of the US and Britain.

Class action lawyers squealed like stuck pigs. And who could blame them? Their gravy train was in peril. The Labor Party — a recipient of financial support from class action lawyers — took up their cause with a passion.

These law firms were infuriated that Frydenberg had required them to meet the same standard of proof as their counterparts in the US and Britain.

In March, when the temporary fix expired, the government wanted to make the change permanent.

But the bill that would do that, the Treasury Laws Amendment (2021 Measures No 1) Bill, is stuck in the Senate. It has already been the subject of one Senate inquiry and is now the subject of another.

That means the law on continuous disclosure has reverted to the pro-plaintiff scheme that was in place before Frydenberg’s now-expired regulatory fix. The gravy train is back on the rails — hopefully temporarily.

Class action law firms have had years of easy money because politicians have failed to subject them to the same level of rigour that is demanded of their counterparts elsewhere.

By delaying the Treasury Laws Amendment Bill with these Senate inquiries the political class is sending one last gift to all those struggling law firm partners.

If they move quickly they will still be able to reel in some corporate whales under the pre-Frydenberg rules, where there is no need to prove any element of fault and a settlement is almost guaranteed.

The current inquiry, by the Senate economics references committee, is due to report on June 30. The government’s bill was referred to the committee on March 16, four days after the report from the first inquiry, by the Senate economics legislation committee, was tabled.

Continuous disclosure had also been examined last year by the joint parliamentary committee on corporations and financial services. Before anyone accepts the bleating from plaintiff law firms and their friends in federal Labor, they need to keep in mind what the Australian Securities Exchange told the joint committee about the Treasurer’s changes. And remember, the ASX has no pecuniary interest in this game. It is the entity primarily responsible for developing and monitoring continuous disclosure obligations.

This is what Daniel Moran, who is ASX general counsel and company secretary, told the parliamentary committee last year about Frydenberg’s fix: “We don’t see the steps taken as inconsistent with strong and effective continuous disclosure rules and the maintenance of market integrity … We welcomed and supported the steps taken by the government in May to introduce a fault element to the continuous disclosure provisions.”

There has been a great deal of propaganda disseminated about this issue. So let’s clear the air. Here’s what Frydenberg’s fix did not do: it did not water down the obligation on companies to immediately disclose market-sensitive information.

To assert otherwise is to accept the bleating of those who have a pecuniary interest in the outcome of this debate. Nobody should be surprised that class action law firms, and those who benefit from their largesse, want the rules on continuous disclosure to remain rigged against business for as long as possible.

The ASX, however, is a regulator responsible for market integrity. It’s assessment should therefore carry more weight.

It is also worth keeping in mind that the ASX’s Moran told last year’s inquiry “the benefit of securities class actions may disproportionately benefit litigation funders rather than plaintiffs in these proceedings, with the costs falling on the shareholders of the listed entity”.

Angus Armour, CEO of the Australian Institute of Company Directors, makes the point that Australia’s capital markets have rarely performed better than during the period when Frydenberg’s temporary fix was in place.

“Perceptions of our market integrity were unaffected because the obligations around continuous disclosure were untouched,” says Armour.

“Investors don’t invest in Australia based on a ‘big stick’ penalty regime, except for the investors in class actions. Losing temporary reforms to continuous disclosure legislation exposes Australian companies to a lucrative class action industry and puts people at risk even when they have not engaged in misleading or neglect or careless conduct.

“The proposed changes do not in any way change what needs to be disclosed, or by when. They do not ‘water down’ disclosure requirements. The reckless or negligent director, and the individual who knew that disclosing information would affect the share price and said nothing, is still on the hook and they should be,” Armour says.