Correlation, not causation

16 April 2014

The decision in one Austrian case does not create a binding precedent for other claims, finds Goal Group’s Tania Dupoy

Image: Shutterstock

With the recent globalisation of securities class actions, several non-US legislatures have, over the last few years, emerged as centres that are able to define and prosecute a global class. Austria is one such European centre which has been able to process class actions for a number of years.

The Austrian Supreme Court holds that a “class action with a specific Austrian character” is legally permissible, so the country’s legal system includes a mechanism for class actions developed by case law. This applies to all areas or sectors that a civil court can handle, and Austria has a precedent in processing securities class actions as the cases where the Supreme Court allowed ‘Austrian’ class actions for the first time were related to financial services.

Interestingly, there is no specific procedure for managing class actions in Austria, but a court will provide a binding ruling with respect to the legal question to be solved, after which it will be decided on a case-by-case basis, whether other claims will be covered or not. Therefore the decision in one case does not create a binding precedent for other claims, but it is unlikely that the court will alter its decision when the facts and the legal issue are the same.

A positive to Austria’s legislation is that the ‘loser pays’ rule that applies in some other countries (such as Sweden and Germany) is not present and there generally is the option to make use of professional lawsuit financing companies, meaning claimants can join an action without any litigation cost risk. Austria also does not have the same short limitation periods as other countries, such as Germany, meaning that an injured party can claim up to three years from when a right could have been exercised for the first time.

However, unlike in the US, class actions in Austria operate on an ‘opt-in’ basis, meaning it at the discretion of a claimant to join any proceedings or not. This could be seen as a limiting factor as potential claimants could be less likely to be aware of what actions they can participate in, and an ‘opt-out’ system is generally regarded as allowing for a quicker, more accessible process.

To mitigate this, however, there are specialist service providers that can keep track of and automate the process of class action participation across international legislatures.

After court proceedings have been initiated, potential claimants are not allowed to join a class action for organisational reasons, but it could be possible for ‘a subsequent joinder of causes of action’.

Over the last few years it has become clear that fund managers and custodians have a fiduciary duty to ensure that their clients participate in securities class actions that may recoup some of their investment losses, and, due to the availability of service providers, there is now no excuse for not monitoring and participating in class actions internationally.
Goal Group’s analysis of its class actions knowledge base predicts that by 2020 annual securities class action settlements outside of the US will reach $8.3 billion annually, with the European figure reaching $3.23 billion.

In Austria, claims can be brought by residents from other jurisdictions, highlighting the country as a clear front-runner in processing securities class actions on a truly global scale. All investors and trustees must therefore remain vigilant and monitor global opportunities to participate in class actions to reclaim rightful returns.

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