Australian directors have been warned they are still exposed to offshore legal action following United States President Barack Obama signing into law the high profile Consumer Protection Act (Dodd-Frank Act).
A recent decision made by the US Supreme Court barred Australian shareholders from launching a class action against the National Australia Bank (NAB) in the US Courts due to lack of jurisdiction, but the highly publicised case of Morrison v National Australia Bank has now been partially overturned with the reforms introduced by the US President.
According to Kemsley Brennan, special counsel in the insurance group of law firm Colin Biggers & Paisley, Australian directors should take note of the aggressive stance of US lawmakers and not become complacent about their US exposures.
“The long arm of the US law is alive and well and still reaching into our backyard,” Brennan said.
“There was much initial excitement that the Morrison decision had brought an end to so-called ‘foreign-cubed’ lawsuits, which have caused Australian companies and their directors much anxiety over the attempts of US regulators and courts to impose US law beyond its borders. But that excitement has quickly disappeared, with the US regulators wasting no time in clawing back their powers,” he added.
Shareholders of NAB who purchased the bank’s shares in Australia alleged that its wholly-owned US subsidiary, HomeSide Lending Inc, had overstated the present value of fees it would generate from the servicing of the mortgages.
Once the bank disclosed in 2001 that HomeSide’s servicing and goodwill had been overstated by approximately $2.2 billion, NAB’s share price fell.
The plaintiff shareholders then brought proceedings in the US courts alleging securities fraud against NAB and HomeSide, along with four of its directors.
The signing into law of the Dodd-Frank Act includes a partial overruling of the Morrison case, due to the Securities Exchange Commission and the US Department of Justice regaining jurisdiction over some foreign transactions.
“At present, Australian companies and directors can still be sued by non-US investors if their companies are listed in the US,” Brennan said.
Brennan added that on top of this, Australian companies and directors needed to be alert to broader US litigation risks driven by US regulators and plaintiff class action lawyers pursuing violations of US anti-trust, product liability or employment laws.
