When participating in securities litigation, most institutional investors prefer countries with jurisdiction risk profiles like the U.S., where opt-out classes mean they have no responsibility for paying the attorney fees and case costs up front and there’s no risk of adverse party (loser pays) cost shifting. Suits are filed and prosecuted on a representative basis by others as investors can remain passive and not get involved until after a successful outcome against the defendant(s). At that point, their participation largely involves claim filing and the submission of trading details.
By contrast, many countries outside the U.S. – particularly in Europe (download our UK jurisdiction risk profile) – require direct suits and active participation by investors. As detailed below, if a new European Union (“EU”) proposal is adopted then those countries will more closely align with the U.S. jurisdiction risk profile.
Current European Risk Profile:
In our past blogs (read here), we describe how the 2010 Supreme Court decision in Morrison forced many securities matters into court systems of countries outside the U.S. More than a dozen now have active and rapidly evolving litigation landscapes, and all are grappling with the challenges around efforts at collective redress including:
- How to combine or coordinate the simultaneous prosecutions of hundreds, and in some cases thousands, of individual investor claims, and
- How to resolve disputes among organizers (law firms and funders) vying for leadership and control of these proceedings.
The challenges are most prevalent in countries whose laws do not include a class action or similar representative device, either opt-in or opt-out. Institutional investors will see this particularly so in Europe, where only the Netherlands allows class actions as one of several means for redress. Other European countries rely on collective or coordinated direct actions. The VW/Porsche diesel-gate litigation in Germany shows the related challenges in the extreme. Despite some efficiency with the KapMug process, for years two courts have been struggling with the difficulties of coordinating claims by more than 1,500 institutions and thousands of retail investors.
The EU Proposal:
In April 2018, the EU published a “New Deal for Consumers.” If adopted, ‘qualified entities’ will be able to bring representative actions on behalf of consumers for injunctive, declaratory and/or monetary relief. These representative actions will be additive to existing legal remedies. Investors will still have the option to pursue their own direct actions as they do now.
Similar representative entity actions already exist in several European countries. For example, in the Netherlands, Dutch Foundations can prosecute and settle claims against corporate defendants that, if successful, are followed by administrations or individual claim filings by investors. In Greece, consumer groups like Hellenic Investors Associations threaten or bring direct actions in their own name, including those recently against Folli Follie. Under Danish law, shareholders can pursue opt-in classes while only non-profit associations can pursue opt-out classes.
If adopted, the EU proposal will standardize this entity prosecution approach across member countries. It will precipitate more collective redress and align participation risks for investors with the U.S. profile as associations pursue securities claims in their own name and at their own expense, assuming the risk of adverse party cost shifting. Until there is a successful outcome against defendants, at least as to liability, Investors will not get involved and these representative proceedings will be followed by administrations or individual claim processes focused on investor trading activities.
Under the proposed EU approach, each country will still need to set its own rules for non-profit suits. Variations among member countries will still exist, and investors with significant losses may still choose to pursue their own direct actions, as they can in the U.S. However, the proposal will go a long way towards moving member countries into the low risk – low participation jurisdiction profile of the U.S., and institutions deterred by the current higher risk jurisdiction profiles will find more opportunities for meaningful redress.
For more details on non-U.S. passive participation opportunities including FRT’s Global Group Litigation service, please contact your FRT representative or email us at firstname.lastname@example.org.
- How the Morrison Case has Changed the Landscape for Global Group Action Recoveries
- Evolution of Global Litigation: The Rise of Non-U.S. Passive Participation
- Global Group Litigation: Navigating Complex Non-U.S. Shareholder Class Action Settlements
- ]Three essential things you need to know about Dutch Foundations
U.S. CLAIMS I GLOBAL GROUP LITIGATION I ANTITRUST I LITIGATION MONITORING I BUYOUTS
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