Continuous Disclosure Class Actions – Stemming the Flow

Abstract

This paper suggests that shareholder class actions founded on a failure of the issuer to comply with the continuous disclosure requirements impose significant and unwarranted costs on the market as a result of the material ‘leakage’ they create in the circle of shareholder wealth. The problem is exacerbated by the aspirational nature of the continuous disclosure requirement and the inherent uncertainty in the form of the rule. It is the ambiguity inherent in the rule that has attracted promoters of shareholder class actions to the provision in numbers that dwarf ASIC’s interest in compliance with the provision. Whilst it is accepted that shareholder class actions founded on the continuous disclosure requirements have the potential to encourage compliance are they the best way to achieve that objective? This paper explores three alternative means to stem the flow of capital caused by continuous disclosure based class action claims: a Market Disclosure Panel, re-introduction of fault elements into shareholder compensation actions or the development of a disclosure judgement rule each of which could be considered in the subsequent work of the Australian Law Reform Commission in its Inquiry into Class Action Proceedings and Third-Party Litigation Funders.