A landmark court decision in a shareholder action against HIH could lead to plaintiffs demanding bigger settlements and companies facing suits bearing greater risks.

The decision by the NSW Supreme Court on Wednesday in favour of 117 shareholders in collapsed insurer HIH and its liquidator could have a significant impact on current and future shareholder class actions. Those going through the courts at the moment include actions against Arasor, Oz Minerals and Treasury Wine Estates.

The ruling by Justice Paul Brereton means shareholders planning to sue a company will no longer have to prove they read its prospectus. He said that, while HIH’s conduct did not directly mislead the shareholders, it did deceive the market in which the shares were traded.

Lawyers say the decision is likely to be appealed.

Slater & Gordon principal lawyer Tim Finney said that, until now, there was a risk individual group members would be required to establish that they personally relied on the misleading statements or non-disclosure breaches of companies in order to prove their case.

Mr Finney said the court’s decision in HIH meant plaintiff lawyers and litigation funders would no longer face the risk of having to engage in such costly, time-consuming and onerous evidence-gathering in order to prove shareholders’ claims. This tilted the risk ratio in favour of running cases to trial rather than settling them on a cost-benefit basis, he said.

It could result in larger settlements, as it strengthened the case for aggrieved shareholders generally, he said.

“Assuming it is not overturned on appeal, in future, plaintiffs and their lawyers and litigation funders will not be as willing to apply substantial discounts when negotiating settlements having regard to risk on this point,” Mr Finney said.

Allens partner Jenny Campbell said the decision was a win for shareholders and class action promoters and clarified more than a decade of uncertainty in the law.

The associated risk for plaintiffs was a primary reason why no shareholder class action ever reached a point of final judgment, Ms Campbell said.

“It may make class action promoters more confident of their position and therefore less anxious to settle to avoid the risks of a finding that direct causation is required – those risks will, however, still loom large until the issue is resolved by the High Court,” she said.

Jones Day partner John Emmerig and King & Wood Mallesons partner Moira Saville agreed there was likely to be an appeal.

“It will remain to be seen whether funders start demanding higher settlements in shareholder actions as a result, or whether they were really discounting previously for this uncertainty,” Ms Saville said.

Mr Emmerig referred to the United States as a possible indicator of the future. “It’s only when the US Supreme Court made its key rulings back in 1988 on a similar issue that the game really changed – and then, when it did the impact, was enormous and is still being felt.”

The HIH shareholders claimed losses on the basis they paid more for shares, during certain periods between 1998 and 2001, because of misrepresentations in the insurer’s fiscal 1999 and 2000 results.

The shareholders did not claim that they directly relied on or even read the reports of the financial results, but only that the company’s misrepresentations, which were admitted to by HIH, caused the share price to be higher than it would have otherwise traded.

Justice Paul Brereton ruled that while HIH’s conduct did not directly mislead the shareholders, it did deceive the market in which the shares were traded.

The issue was also raised in a failed shareholder case against collapsed global investment house Babcock & Brown and its liquidators. Shareholders lost their appeal to the full Federal Court in that case on Thursday.