The Australian Parliament has just passed legislation to reform Australia’s corporate disclosure rules, according to a recent article in The Australian.

The existing law relating to corporate disclosure in Australia was extraordinarily harsh and out of step with both the US and the UK.

In simple terms, directors and corporations were being sued in class actions for trivial breaches of a corporations’ disclosure obligations – even though there was no negligence or wrongdoing on the part of the directors. In some cases, class members had not suffered any real financial harm.

For their part, litigation funders and plaintiffs’ lawyers were looting hundreds of millions of dollars from the class members in fees, commissions and other charges based on these claims.

As a result, D&O insurance had become unaffordable for many, board seats were less attractive, and corporations were becoming risk averse – unwilling to invest in new ventures or take a chance on a new project.

The legislation makes permanent the interim protection the Government provided last year.

Now corporations and directors will only be liable if they have acted with “knowledge, recklessness or negligence” in failing to update the market with price-sensitive in­formation.

The Senate passed the legislation with a narrow majority. One of the key votes was Senator Stirling Griff, who was initially skeptical of the legislation.  Speaking in the debate, Senator Griff said “[m]y initial impression was that company directors were in a fight with class action lawyers, and the government had decided to throw its weight behind the directors,” he said.

However, Senator Griff told the Senate that he had come to understand that class actions could proceed on the basis of a purely technical, “even trivial, breach of the disclosure obligations. A litigant does not need to demonstrate any wrongdoing by the company or its officers. There doesn’t need to be any incompetence or negligence. Class ­actions can proceed even where the litigant has not suffered any real financial harm,” he said.

He went on to say, “It is difficult to see how the public interest is served by class actions that proceed on the basis of technical breaches where shareholders were not harmed.” and that the legislation was a “reasonable solution” requiring class ­actions to demonstrate a disclosure breach was done “knowingly, recklessly or negligently.”