The amount of damages awarded in 2009 Japanese securities
cases exceeded "the aggregate amount of securities litigation damages
determined by court decisions in Japan for the entire previous decade,"
according to a new study of Japanese securities litigation from NERA Economic
Consulting. The report, dated August 2, 2010 and entitled "Trends in
Japanese Securities Litigation: 2009 Update," and which can be found here, updates the NERA report released last year that surveyed Japanese
securities litigation from 1998-2008.
According to the report, there were 39 total cases filed
in 2009, of which 14 related to misstatements, the same number of misstatement
cases as in 2008. The balance of the filings largely involve broker-dealer
cases, of which there were 23 in 2009, 12 of which related to unlisted stock
The most significant trend noted in the report has to do
with damages awards. The total value of all 2009 securities lawsuit judgments was
about 47.2 billion yen (just under $550 million), which is four times the 2008
total and the highest annual level ever. The average damage aware per judgment
amount was also a record high of 1.9 billion yen, or about $22 million.
Both the 2009 filings and damage awards reflected matters
involving two notable companies, Livedoor and Seibu Railway. Thus, of the 14 new disclosure cases filed
in 2009, five each related to Seibu Railway and Livedoor. New cases
"involving other companies and/or allegations were limited."
Similarly, much of the damages awarded "were related to the Livedoor and Seibu
Railway cases." The report specifically notes awards that approximately 25
billion yen in damages is attributable to just two awards involving those two
companies in 2009.
The report acknowledges that as the Seibu Railway and
Livedoor cases are resolved, there is like to be a decrease in the number of
judgments and damages related to misstatements, but the report suggests that
any such downturn will be "short-term."
The report attributes the historical trends of increased
number of disclosure related lawsuits and increased damages to changes that
were introduced in Japanese law in 2004. Among other things, these changes the
plaintiffs' burden for proving damages was decreased and the powers of the
Japanese Securities and Exchange Surveillance Commission were increased.
Increased disclosure burdens on companies and heightened institutional investor
expectations "may lead to an increase in the number of misstatement cases
in the [the] future."
Though the reasons for the phenomenon in Japan may have
uniquely Japanese attributes, Japan is only one of several countries that has
seen an increase in the number and severity of securities related lawsuits in
recent years, largely as a result of relatively recent legal reforms. Prior
NERA reports have detailed these trends in Australia (about which refer here) and Canada (about which refer here).
These trends, which are also emerging in other counties
as well, seem likely to continue, both because of the evolving impact of legal
reforms as well as because of increased expectations of institutional and other
investors. Other factors, including the increasing availability of litigation
funding, which has proved to be a significant factor in the growth of
securities litigation in Australia and elsewhere, could also contribute to
Another factor that at least potentially could encourage
these trends is legal developments in the United States, particularly the U.S.
Supreme Court's June 2010 decision in Morrison v. National Australia Bank (about which refer here and here). As a result of this decision aggrieved investors who
purchased securities on non-U.S. exchanges will be unable to pursue remedies
under the U.S. securities laws in U.S. courts. As a result, some
foreign-domiciled investors who might have attempted to pursue claims in the
U.S. may now seek to pursue claims in their own country - and even, to the
extent they find the remedies or procedures in their own country to be
unsatisfactory, to seek legislative.
In any event, as the authors of the recent study suggest,
the developments in Japan seem to represent longer term trends, which seems to
be true in other countries as well. Even though there are still many more securities
lawsuits in the U.S. than elsewhere, the number and significance of the
lawsuits outside the U.S. appear to be increasing.
other items of interest from the world of directors & officers liability,
with occasional commentary, at the D&O Diary, a blog by Kevin LaCroix.