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E-commerce

Online retailer faces shareholder class action

Quinn Emanuel yesterday filed a $100 million class action against online retailer SurfStitch in the Supreme Court of Queensland on behalf of aggrieved shareholders.

Documents filed with the court allege SurfStitch breached its disclosure obligations and engaged in misleading or deceptive conduct in relation to announcements made to the market concerning its extensive business and brand acquisition regime.

“Shareholders saw the value of their shares plummet by 85 per cent following a series of profit downgrades – slashing its market capitalisation by $500 million,” said Pip Murphy, director of investments at Vannin Capital, the litigation funder funding the case.

“This was a clear case of a breach of disclosure obligations and misleading and deceptive conduct, and we are confident in being able to achieve a positive outcome for shareholders.”

In an ASX announcement, SurfStitch noted that it had not received “any claim or other communication in relation to this matter”, and said it would update the market as required.

The e-retailer yesterday announced it expects losses to double this financial year, even as it closes its unprofitable US operations.

Quinn Emanuel partner Damian Scattini said that he believed the claim was valued at around $100 million.

“Companies need to know that the free market depends on them being upfront with investors. Class actions like this send a powerful message to company boards that if you mislead investors, you will be held to account,” Scattini said.

The case is believed to be the first shareholder class action under the Supreme Court of Queensland’s new class action rules, which became effective on 1 March 2017.

Scattini said this was an early opportunity for the Queensland Supreme Court to hear and determine class actions that arise in its own backyard.

 The move comes as some legal experts say class actions are on the rise Down Under. Australia is now the second most likely jurisdiction (after the US) where businesses will face significant class action litigation.

In a recent report on the 25-year history of class actions in Australia, international law firm Herbert Smith Freehills revealed that 40 per cent of all class actions have been brought in the last six years.

Were talking about a massive trend in growth, Jason Betts, litigation partner at Herbert Smith Freehills, told Internet Retailing.

I should be clear were only talking about 500 or so cases, which doesnt sound like an enormous number in and of itself, but the value of the claims being brought is large, he said.

According to Betts, recent changes in the legal landscape, specifically the rise of litigation funders like Vannin Capital, have made class actions more common today. 

Litigation funding took off around 2010, which coincides with the last six years of growth of class actions, he said.

While the data only show correlation, not causation, there has been a spate of high-profile class actions in recent years. Bonsoy, Volkswagen, Sigma Pharmaceuticals, Bellamys, Thorn Group (Radio Rentals parent company), and now SurfStitch can attest to that.

To be fair, however, some legal professionals dispute the idea that class actions are on the rise in Australia.

Most of the evidence shows that the growth in class actions has been quite moderate, and whilst arguably theres been a slight increase in the number of class actions due to introduction of state systems in Victoria, New South Wales and very much more recently Queensland, the fact is the number of federal class actions has remained remarkably static,” said Andrew Watson, national head of class actions at Maurice Blackburn Lawyers, which represents consumers and shareholders in several of the class actions mentioned above.

Meanwhile, Mark Humphery-Jenner, an associate professor in the school of banking and finance at UNSW Business School, says more class actions aren’t necessarily a bad thing, unless they’re being used to go after companies that have not committed any wrongdoing.

“Thats not really happening in Australia, where class actions are generally being used as a remedy for consumers and individuals, but theres clearly a risk of that occurring,” he told Internet Retailing

Update: This article has been edited to include SurfStitch’s statement to the ASX. 

Editor’s note: Internet Retailing asked SurfStitch for comment, but had not received a reply at the time of this writing. 

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