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Author: Georg E. Kodek

III. General Collective Redress Mechanism: the 'Austrian model' of group litigation

1. General description

Austrian practice has developed a form of group litigation based on a combination of joinder of claims and litigation finance. Under this scheme, potential claimants assign their claims to an association (typically a consumer association) which then files a complaint on their behalf. Assembling a large number of claimants in this fashion enables the association to avail itself of commercial litigation finance. This procedure is referred to as 'Austrian model of class action' ("Österreichisches Modell der Sammelklage").

This procedure has been successfully used in a number of mass cases. Many of these cases were brought against banks for charging excessive interest rates on loans. Also, the majority of claimants in a securities case involving more than 3,000 claimants, the largest mass litigation in Austria, employed this scheme. More recently, this scheme is used in damages actions for unsuitable investment advice. In 2012, approximately 20,000 such claims were pending before the Vienna Commercial Court and the Vienna District Commercial Court, with about half of these having been brought by way of this form of group action.

2. Scope

The possible scope of application of this procedure is extremely broad. There are no restrictions to a special area of the law such as consumer protection, labour law etc. However, since the procedure, in large measure, is based on an assignment of claims to an association or other institution, it is limited to money claims as under Austrian case law claims for declaratory judgments ordinarily cannot be assigned.

3. Procedure

a. Standing

The procedure achieves "collectivization" by having all claims assigned to an association or other institution. In practice, only the Consumer Information Association (Verein für Konsumenteninformation) and the Employees' Chambers (Arbeiterkammern) bring such proceedings although others, for example the Chamber of Commerce, would be entitled to do so as well. If these organisations appear as claimant, special rules apply for appellate proceedings. In essence, all restrictions based on the amount in controversy, which in other cases may restrict the grounds that can be raised on appeal to the Court of Appeals and which could bar access to the Austrian Supreme Court altogether, do not apply if these organisations initiate the proceeding.

Apart from this, there are no special restrictions on standing. Thus, any other association would be entitled to pursue claims assigned to it. It has also been suggested in legal literature that a special limited liability company could be set up to serve as a vehicle for collectivization of mass claims. But it seems that this has not been attempted so far. In all these cases the special rules for appellate proceedings mentioned above do not apply. Thus, a mass case brought by a "normal" association or other body is simply governed by ordinary rules of civil procedure.

There are no restrictions as to the persons entitled to assign their claims to an institution. As a practical matter however, participation in such a proceeding requires that an association is willing to take up one's claim, though it seems that so far this has not created any particular difficulties.

b. Opt-in; opt-out procedure

The Austrian model of group litigation is based on a claimant assigning his claim to an association or other institution. Therefore, the procedure applies only to those who have taken steps to join the proceedings. This is an important difference from the US-type class action.

c. Competent court

There are no special rules on jurisdiction for this type of proceeding, therefore, the ordinary rules on jurisdiction apply. Consequently, this type of proceeding could be brought before any Austrian court. In practice, however, with investor claims constituting by far the largest portion of claims, most such proceedings are pending before the Vienna Commercial District Courts (if the highest single claim brought does not exceed EUR 10,000 or - effective 1 January 2013 - EUR 15,000) and the Vienna Commercial Court for all other claims.

d. Certification criteria

There is no certification process in the technical sense of the word. Early on, defendants have vigorously challenged this procedure. In some investor claims cases it took three years until the Austrian Supreme Court decided that the procedure was admissible and that a defendant had no standing to challenge a claimant's use of commercial litigation finance.

The only criterion which somewhat resembles certification is the requirement imposed by the Austrian Supreme Court that raising several claims in one action is only permissible if the claims are based on substantially the same cause of action and concerned substantially similar questions of law and fact . In practice, this does not bring about a significant restriction since no sensible claimant would bring totally unrelated claims in one proceeding.

Defendants often argue in unsuitable investment advice cases that the claims should not be joined since the advice given to the various members of the group has to be assessed on an individual basis therefore not being amenable to disposition in a group proceeding. In the most prominent case concerned, claimants overcame this objection by successfully arguing that the defendant had employed a systematic scheme of unsuitable advice in order to promote a specific product.

e. Main procedural rules

Since the Austrian model of group litigation is characterized by all claims being assigned to a single association which then appears in the proceeding as single claimant, the ordinary rules of civil procedure apply. In practice, courts often decide on one or a few claims by way of a partial judgment in order to permit the appellate courts to review the relevant questions of fact and law. Once these questions are settled, the remaining claims typically are settled by the parties. Alternatively, decision of these claims would be relatively easy for the courts based on the appellate decisions already generated by the partial judgment.

f. Evidence/ discovery

There are no special rules on evidence or discovery for this type of proceeding. Occasionally criminal proceedings are used in mass damages cases as a vehicle to bring civil claims. Austrian criminal law allows the victim of a crime to pursue his or her claims in the criminal court. The court can award damages or grant other remedies if the defendant is convicted. In case of an acquittal, damages can only be obtained by way of a separate civil proceeding. This procedure of "annex proceedings" ("Adhäsionsverfahren") is available regardless of the number of claimants and is cheaper than initiating a separate civil litigation. While criminal courts in the past may have been reluctant to decide on civil claims (referring the victims to civil proceedings instead), this seems to have changed in recent years. Obviously, this avenue is available only if the damages claimed are the result of the criminal conduct of the defendant.

g. Multi-stage process

The procedure is a single-stage process. Since the Austrian model of group litigation is characterized by all claims being assigned to a single association which then appears in the proceeding as a single claimant, the ordinary rules of civil procedure apply. The real work is finding and categorizing possible claimants and dividing them into manageable "portions" for a group proceeding. This type of work is carried out by the association which appears on behalf of the claimants and not by the court.

h. Relationship with civil procedure rules

All these mechanisms fit into traditional civil procedure, either by combining several parties, or several lawsuits, or by "collectivizing" mass claims by way of assignment to an institution which then proceeds as a single claimant.

i. Participation of foreign plaintiffs

The procedure is not restricted to Austrian claimants. Foreign claimants are free to participate.

j. Effect on res judicata

The scope of res judicata on the procedures described above is limited to the parties who actually participated in the proceeding. Other members of the respective group who did not take part in the proceeding are not bound by the outcome.

4. Available remedies

The procedure is almost exclusively available for monetary damages. The reason for this is that the procedure is based on claims assigned to an association or other institution. Under Austrian case law, claims for a declaratory judgment normally cannot be assigned.

5. Costs & funding

The 'Austrian model of group litigation' has the advantage of yielding a sufficiently high amount in controversy which enables the claimants to use commercial litigation finance. This enables the claimant to pursue his or her claim without any risk. On the other hand, the fee for the litigation finance will generally be between 30 and 40 percent of the overall amount recovered. The Austrian Supreme Court has held that a defendant has no standing to challenge such a fee arrangement. Commercial litigation finance is used quite often in this type of proceeding. Initially, the possibility of using litigation finance was one of the major driving factors in inventing this procedure. Since litigation funding agreements are not normally divulged, no exact figures as to the frequency of the use of litigation finance are available. It is a safe assumption that all the "big proceedings" described above with more than 50 claims brought in one proceedings use litigation finance. Coordination of contributions to the costs of such a large number of claimants would be difficult in practice. Some proceedings for unsuitable investment advice are brought without litigation finance, but this seems to be the exception as opposed to the norm.

6. Number of claims

The procedure is extremely important in practice. Whilst initially it was used mainly in proceedings with a few dozen claims, it is now the vehicle to bring large numbers of claims in one proceeding. Today, the area where this type of proceeding is used most prominently is investor suits for damages for unsuitable investment advice. Currently, there are about 22,000 investor claims pending before the Vienna Commercial Court and the Vienna Commercial District Court. Of these, about 12,700 claims are brought by way of 22 group proceedings which combine more than 50 claims per proceeding. The average number in this category is 580 claims per proceeding. In addition, there are 72 smaller group proceedings with less than 50 claims per proceeding. 1,400 claims are brought in this way, resulting in an average of 20 claims per proceeding.

7. Particularities/Problems in cross-border cases

There are no procedural peculiarities if this mechanism is used in cross-border cases. Since the procedure requires that all claimants actively take part and assign their claims to an association, jurisdiction over the members of the group (which may be problematic in an opt-out type procedure) is not an issue.

However, it should be noted that the CJEU (formerly ECJ) has held that the rules on jurisdiction for consumer cases under the Brussels I Regulation do not apply any more if a consumer assigns his claim to an association. In 1993, the Court held that a plaintiff (now claimant) acting in pursuance of his trade or professional activity, and who is not, therefore, himself a consumer party to one of the contracts listed in Article 15 Brussels I Regulation, may not enjoy the benefit of the rules of special jurisdiction laid down by the Convention (now Regulation) concerning consumer contracts. The rationale for this decision is that a consumer association is less worthy of special protection than an individual consumer.

8. Critiques

The system works quite well in practice. However, assignment of one's claim to an association cannot arguably be the only practical way of pursuing one's claim. Also, the financial and personnel resources available to associations may limit the number of claims that can be brought in this way. Therefore, since 2005, introduction of a new group proceeding has been discussed which is not to replace, but supplement, the procedure currently used.

1. Klauser 2002 805; Kodek 2004 615.

2. Austrian Supreme Court, 12 July 2005, 4 Ob 116/05w.

3. Austrian Supreme Court, 27 February 2013, 6 Ob 224/12b.

4. The figures given here are as of 31 December 2012. They are taken from an unpublished lecture by Judge Parzmayr, judge of the commercial court, on 25 April 2013.

5. ECJ, Judgment 1 October 2002. - Verein für Konsumenteninformation v Karl Heinz Henkel,- Case C-167/00; Austrian Supreme Court 4 march 2005, 9 Nc 4/05w.

6. ECJ, Judgment of 19 January 1993, Shearson Lehmann Hutton Inc. v TVB Treuhandgesellschaft für Vermögensverwaltung und Beteiligungen mbH.