Sub-Prime Crisis Related Litigation In Australia

Key Points

• The US sub-prime crisis and the consequent liquidity freeze have to date resulted in relatively little litigation in Australia (in contrast to the US), but further proceedings are likely.

• Sub-prime related litigation has the potential to contribute to the development of investor class actions, and provide guidance as to what conduct is likely to mislead or deceive a non-retail investor.

It is a measure of how interconnected the global economy is that a collapse in a segment of the US home loan market can wreak havoc throughout the world's financial system. In the space of six months, the fallout from the US sub-prime mortgage crisis wiped billions of dollars from the balance sheets of major financial institutions and led to a liquidity freeze. This arose because financial institutions became extremely reluctant to lend to each other due to