Financial Lines Update

08 April 2021

Welcome to our financial lines update, where we bring you recent developments relevant to the financial lines insurance market.

In this update, we highlight the focus of two key inquiry reports on strong leadership and accountability and the High Court’s support of class action beauty parades continuing:

  • The Royal Commission into Aged Care Quality and Safety on 1 March 2021 published its Final Report containing 148 recommendations which provide valuable insights for all boards and directors relevant to the independence and accountability of boards, strong leadership and risk management.
  • Hockey Australia released on 18 March 2021 29 independent recommendations to improve its alleged toxic culture, relevant to all companies and boards.
  • On 10 March 2021, in Wigmans v AMP Ltd & Ors [2021] HCA 7, the High Court of Australia dismissed the appeal of the lower court decisions to stay three of the AMP shareholder class actions, confirming that lower courts should continue to apply the ‘beauty parade’, or multi-factorial approach, when choosing between competing class actions.

Insights for directors and boards from the Aged Care Royal Commission final report

For the past two years, the Royal Commission into Aged Care Quality and Safety examined the state of Australia’s current aged care system. Over the course of nearly 100 days of hearings before Commissioner Pagone, Commissioner Briggs and Commissioner Tracey (who passed away in 2019), Australia heard shocking accounts of abuse, neglect and poor care standards in aged care.

However, this deep dive into Australia’s aged care system also shed light on the governance of aged care providers, and the role that boards and directors play as part of the broader aged care system. Out of the Royal Commissioners’ 148 recommendations, many relate to the obligations and standards of the governing body of approved providers. In fact, the Federal Government has already responded to the Final Report by immediately investing $30.1 million to strengthen the governance of aged care providers and legislative governance obligations.

Although these recommendations are just that – recommendations put to the Government for action – the issues they raise are, of course, not unique to aged care. Recommendations 88, 89 and 90 in particular provide important insights for directors, officers and boards of all industries, which we explore below.

Independence and accountability of boards

These insights firstly stem from recommendation 88, which proposes improvements to provider governance, including requiring the governing body to have a majority of independent non-executive members, and increasing the transparency of information about approved providers and their governance arrangements.

The Royal Commissioners drew on guidelines and submissions produced by the Australian Institute of Company Directors, the ASX and the Governance Institute of Australia to conclude that the independence of boards is part of “contemporary good governance practice in Australia”. Similarly, they found that “accountability and transparency are critical features of good governance”. Commissioner Briggs in particular advocated for extensive reporting obligations on boards.

While the Final Report draws a link between a lack of independence and transparency of approved providers and poor care outcomes for older Australians, these features are clearly essential to the good governance and success of any board.

Strong leadership

The Royal Commission’s Final Report comments on the significance of strong leadership to the culture and care environment of aged care for older Australians.

Commissioner Briggs stressed the importance of good leadership by proposing that leadership should be a factor for aged care provider approval in recommendation 89.

Furthermore, the Royal Commissioners recognise that the attitude and culture of the executive, including the directors who comprise the board, filters down and has a profound impact on the organisation’s output.

Risk management

This last insight draws on recommendation 90 regarding a new governance standard for approved providers, which includes a requirement to have effective risk management practices. In particular, this recommendation of the Final Report highlights the importance of risk management in the context of the 2020 bushfires and COVID-19 pandemic.

The Royal Commissioners emphasise that risk management is vital to ensure that governing bodies are aware of emerging and significant risks. Certainly, it is important for all boards to have structures, systems and processes in place to identify, evaluate and treat risks, as and when they arise.  

Sport in the spotlight: what can we learn from the recommendations to Hockey Australia?

On 18 March 2021, just four months before the Tokyo Olympics, Hockey Australia released recommendations from an independent review into claims of a toxic culture, bullying and poor governance within the Women’s High Performance Program.

In short, the review concluded there is a dysfunctional culture within the program, and made 29 recommendations, of which almost half relate to the governance of Hockey Australia’s board. The sheer proportion of recommendations relating to the board indicates the inextricable link between leadership and governance, and the culture of an organisation.

In some ways, these recommendations echo those proposed in the Aged Care Royal Commission Final Report. Hockey Australia has since released a statement in response, in which it welcomes these recommendations and intends to “make changes to design and implement a cultural transformation”.  

This review and its findings serves as a timely reminder for all boards and directors to evaluate the culture and governance of their own organisation, and how it might filter down the company.

Wigmans v AMP Ltd & Ors [2021] HCA 7: competing class actions – the parade continues

On 10 March 2021, in Wigmans v AMP Ltd & Ors [2021] HCA 7, the High Court dismissed, albeit by only a 3:2 majority, an appeal against the decisions of the lower courts which had stayed three of the AMP shareholder class actions. The judgment is a significant one for the class action space as it confirms that courts may continue to apply the ‘beauty parade’, or multi-factorial, approach when choosing between competing class actions. The majority also rejected the principle of ‘first in best dressed’ when proceedings compete, though acknowledged it was a relevant factor (the minority held the presumption does exist). While the narrow majority arguably dilutes the impact of the decision, it nonetheless confirms that the parade continues and so the appropriate approach will invariably depend on the nature of the case in hand.

Background

Five shareholder class actions were filed against AMP, the first commencing on 9 May 2018 in the Supreme Court of New South Wales. Within a month, four Federal Court proceedings were subsequently commenced, but were eventually transferred to the NSWSC (with two of them ultimately consolidated into one proceeding).

Although each proceeding was different, they all overlapped to varying extents and sought damages in respect of AMP allegedly breaching its continuous disclosure requirements. The proposed funding arrangements for each proceeding comprised a varied assortment of commercial litigation funders and law firms acting on ‘no-win, no-fee’ terms.

The remaining four proceedings applied for a stay of each other’s proceedings. AMP indicated no preference as between the competing proceedings, but was keen to only respond to one set of proceedings.

At first instance, Ward CJ of the NSWSC stayed three of the proceedings1 on the basis of the ‘GetSwift’ multi-factorial approach2. The High Court appellant, Ms Wigmans, subsequently brought an appeal of the stay of her proceeding to the NSW Court of Appeal, but this was unanimously dismissed.3 The High Court granted Ms Wigmans leave to appeal the NSWCA’s decision last April.

The High Court decision

On 10 March 2021, a narrow majority of the High Court 4 (the joint judgment of Gageler, Gordon and Edelman JJ at [51]-[124]) held that there was no error in the approach taken by the primary judge or the NSWCA.

First in best dressed?

The majority dismissed the argument that there should be a ‘first-in-time’ rule or a presumption that “it is prima facie vexatious and oppressive to commence a second proceeding dealing with the same controversy” [89]. The High Court noted a concern that too much of an emphasis on the first proceeding could facilitate an “ugly rush to the court door” alongside causes of action and claims for relief framed overly broadly, in order to trump subsequent proceedings [86].

Nevertheless, it was held that the greater the gap in time for commencement, the stronger the case for a stay of the subsequent proceedings [107].

Multi-factorial prevails and one size does not fit all

The majority also endorsed the multi-factorial ‘beauty parade’ approach applied by Ward CJ to determine which proceedings to stay permanently. In doing so, at [105]-[112], the High Court identified five key considerations:

  1. Despite competing proceedings being discouraged, there is no ‘one size fits all’ solution when the issue arises;
  2. The first-in-time rule is not favoured as a means of resolving competing proceedings, but it is a relevant consideration;
  3. The progress and ‘degree of expedition’ of competing proceedings (including in respect of interlocutory activities) are relevant considerations;
  4. Relevant factors will necessarily vary from case to case, but group members’ best interests need to remain the court’s focus; and
  5. Litigation funding arrangements are not a mandatory consideration, but are not irrelevant.

Dissenting comments

In their joint dissenting judgment, Kiefel CJ and Keane J held that:

  1. The ‘first-in-time’ presumption did exist, and that the other proceedings ought to have been stayed because those proceedings could not establish any ‘juridical advantage’ (for example, that they were able to better frame questions in dispute) [14] and [16];
  2. The court has no inherent jurisdiction to choose which of the sponsors of competing representative proceedings should be selected for determination [15]; and
  3. The NSWSC’s power to stay proceedings, pursuant to sections 67 and 183 of the Civil Procedure Act 2005 (NSW), bars the court from applying the multi-factorial analysis [14] and [31]-[32].

Takeaways

As the majority did not significantly alter the ‘beauty parade’ approach beyond affirming the ‘depends on the circumstances’ view, moving forward, it is unlikely that much will change in the courts’ handling of competing class action proceedings.

The decision also serves as a reasonably definitive rejection of the ‘first in best dressed’ advantage (though this is not an irrelevant consideration) which, in turn, might ensure that plaintiffs avoid making overly broad claims in the interests of stifling subsequent competing causes of action.

Please contact Jason Symons at jsymons@hwle.com.au or Matthew Harding at mharding@hwle.com.au to discuss further.

If you missed our previous Financial Lines Update, please click here.

This article was written by Jason Symons, Partner, Matthew Harding, Partner, Claudia George, Solicitor and Max Henshaw, Solicitor.


Wigmans v AMP Ltd; Fernbrook (Aust) Investments Pty Ltd v AMP; Wileypark Pty Ltd v AMP Ltd; Georgiou v AMP Ltd; Komlotex Pty Ltd v AMP Ltd [2019] NSWSC 603.
Perera v GetSwift Limited [2018] FCA 732.
Wigmans v AMP Ltd [2019] NSWCA 243.

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