Troubled logistics software start-up GetSwift has welcomed a Federal Court ruling that today confirmed only one class action suit would proceed against the company.
The full court today threw out the appeals from law firms Squire Patton Boggs, on behalf of Dwayne Perera and other investors, and Corrs Chambers Westgarth Lawyers, on behalf of Shaun McTaggart, and upheld Justice Lee’s ruling that their class actions against GetSwift (GSW) would be dropped.
A third class action, dubbed the Webb Applicant, launched by law firm Phi Finney McDonald on behalf of Raffaele Webb, will continue. It was determined by Justice Lee to likely produce a better return for group members than the rival actions.
The class actions were launched between February and April this year, after GetSwift and its then CEO, former Melbourne Demons footballer Joel MacDonald, allegedly breached its ASX disclosure obligations related to some of its customer contracts.
“We’re very happy, and the company is very happy,” Quinn Emanuel Urquhart & Sullivan managing partner Michael Mills, who is representing GetSwift, told The Australian.
“The full court substantially adopted our submissions, and obviously GetSwift is thrilled it won’t be involved in multiple actions, just the one. It will significantly reduce the costs of proceedings, for company and therefore its shareholders.
“Also we can go back and get our costs, which obviously we’re keen to do.”
The judgment in the GetSwift case is believed to be the first time the court has stayed competing class actions, rather than allowing them to coexist.
The judges said in today’s ruling it may be time to consider a 90 day standstill upon the first filing of proceeding, in order to avoid a ‘race to file’ and to allow a reasonable time for other solicitors or funders to undertake a proper due diligence.
“In order to reduce the incentive to rush to the court, and to reduce any incentive to speedily follow another party that does so, any book building that occurs during the standstill period should be given no weight by the court,” the judges wrote, adding that a similar process exists in the US.
GetSwift revealed in its quarterly report last month that it spent almost $5 million on legal defence and admin costs for the quarter, double the amount of the previous quarter.
Chairman Michael Fricklas told shareholders the company was facing challenges on a number of fronts.
“Our stock price soared and then fell, resulting in shareholder losses, inquiries from regulators and challenges from class action lawyers,” Mr Fricklas said.
“We have been required to pay close attention to these matters, which has consumed management attention and raised concerns for customers and shareholders alike.”
The company admitted its legal defence costs in the Federal Court cases were significant.
“Administration and corporate costs continue to be significant expenditures due to legal defence costs and increased governance expenses, together approximately 35 per cent of the company’s gross expenses for the quarter,” GetSwift told investors last month.
“These expenses include costs for defending proceedings before the Federal Court of Australia.
“The company has been defending and will continue to vigorously defend these proceedings, and if the company prevails, will aggressively pursue the return of any costs in addition to other damages it may be entitled to.”
GetSwift posted a net loss for the quarter of $4.8 million.
Mr Fricklas said on his appointment in April that despite the impending class actions, he would do his best to make sure it was a case of business as usual for the Melbourne and New York-based company.
“There is no denying GetSwift is facing a number of challenges as it matures as a company,” Mr Fricklas told shareholders.
“The company’s growth requires a build-out of its infrastructure and human resources, while the legal challenges of class action lawsuits and an ASIC investigation are requiring management attention that we would rather focus on the underlying business.
“I’m impressed by the team’s focus and determination and I’m confident we will come out of these challenges stronger and even more determined to succeed.”
He added that “we’ve seen these kinds of class actions before.”
“I don’t think the risks are unreasonable. The governance changes are consistent with what regulators have been asking for, and we will work hard to get it all back on track.”
It was alleged GetSwift breached its obligations to the market in announcing over-hyped deals with The Fruitbox Company, the Commonwealth Bank and Fantastic Furniture and that those deals were allegedly either cancelled or were subject to ongoing review.
GetSwift didn’t initially disclose to market the full details on the conditionality of those deals, and the competing class action suits alleged then-GetSwift CEO Mr Macdonald engaged in misleading and deceptive conduct in trade, and failed to comply with continuous disclosure obligations.
Shares in GetSwift were down 2 per cent to 49 cents at market close.
The case continues.