In a note released yesterday, Corrs Chambers Westgarth warned that the Senate Economic References Committee report into the performance of ASIC has set the stage for “opportunistic litigation by plaintiff firms and litigation funders”.
“Class actions have already been foreshadowed and some plaintiff law firms have been reported as saying ‘the phones are running hot’,” said the law firm.
Such class actions are likely to draw attention to “perceived failure in management oversight and internal compliance programs”, the note said.
“Moreover, the ‘hyped’ environment may encourage an increase in corporate whistleblowing (whether to ASIC or the media) leading to exposure of perceived issues within an organisation well before an organisation has identified or is ready to deal with those issues,” Corrs Chambers Westgarth said.
The Senate report also foreshadows the potential for claims against financial institutions by alleging breaches of the responsible lending obligations of the National Consumer Credit Protection Act, said the note.
Corrs Chambers Westgarth listed a number of steps AFSL holders should take immediately to “identify and minimise the risk of litigation and regulator criticism and/or enforcement action”.
Firms should review their whistleblower policies to ensure employees are encouraged to raise issues internally and deal with claims “within the confines of current legislative requirements”.
Legal and compliance teams should identify measures that preserve legal privilege in confidential communications.
“This is of utmost importance for internal review programs designed to identify high risk files or to identify failures in oversight,” the law firm said.
AFSL licensees should also keep in mind that in some circumstances, privileged documents cannot be withheld from a Royal Commission, Corrs Chambers Westgarth said.
“In the event that issues likely to pose litigation risks are identified, proactive steps can be taken to mitigate the risk of proceedings being commenced,” said the firm.
“This might include early engagement with stakeholders as well as alternative methods of dispute resolution such as early and appropriate compensation properly documented in deeds of release.
“Ultimately, it is identifying issues early that will best protect an AFSL holder from not only the risk of litigation but also the reputational damage arising from litigation,” Corrs Chambers Westgarth said.
