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AUSTRIA: An Introduction to Dispute Resolution: Litigation

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The Austrian court system and litigation practitioners are faced with significant developments and transformations, some caused by changed market conditions and some relating to international trends gradually finding their way to Austria. These developments can be expected to have considerable impact on litigation practices in 2022/2023.

Effects of the Pandemic, Reform of the Code of Civil Procedure

As elsewhere, the COVID-19 pandemic continues to have a noticeable impact on many aspects of daily life, both in the private and the professional realm. This includes, in particular, the judicial system and the conduct of civil proceedings.

In early 2020, a number of temporary legislative arrangements were enacted in order to effectively respond to the sudden emergence of the pandemic (e.g. concerning procedural matters and aspects of the statute of limitations). Some of these temporary laws have already expired; other changes are here to stay.

In any event, the pandemic has spurred reform efforts. This holds true, inter alia, for a reform of the Austrian Code of Civil Procedure. Some aspects of this reform already entered into force in early May 2022. The reform has a particular focus on increasing procedural efficiency, with some measures pertaining to the further digitalisation of the judiciary (e.g. electronic file management by the courts) and others aiming to improve access to justice.

One efficiency-related amendment concerns the cost privilege, which is intended to motivate parties to settle in the early stages of a trial by reducing court fees in half. The new provisions clarify some aspects of that privilege and also expand the privilege to other modalities of reaching settlement (e.g. certain settlements reached in the course of mediation proceedings).

An aspect not yet adopted concerns online court hearings, a feature regularly requested to be incorporated into the Austrian Code of Civil Procedure by both judges and lawyers. The possibility to conduct oral hearings online for domestic hearings was first introduced by a special temporary law enacted in the wake of the pandemic (1. COVID-19-Justiz-Begleitgesetz). Based on this law and provided the parties’ consent, a court may hold hearings via video conference software. This was and is still used regularly. However, as mentioned before, the legal basis for this is temporary. It has been prolonged by the legislature in the past, but despite steadily growing calls for reform in this regard, has not yet made it into the permanent procedural framework of the Code of Civil Procedure.

Climate Change and ESG Criteria 

Further developments have been entailed by the discussion on the effects of climate change as well as by the growing importance of environmental, social, and corporate governance (ESG) criteria as an additional means of evaluating corporations, complementing the classical, purely economic valuation method. ESG targets have already become a decisive factor for institutional and private investments. At the same time, insurers are starting to include (prospective) policyholders’ ESG scoring and corporate social responsibility practices into their risk assessments and premium models.

So far in the public domain, there are only few active cases of climate change- and ESG-related litigation in Austria. However, this will likely change sooner than later as such claims will likely be pursued more often and more vigorously in the near future.

In this context, a court procedure relating to constitutional law may serve as an example: in February 2020, an application was submitted to the Austrian Constitutional Court by some 8,000 people holding that certain Austrian tax privileges to the benefit of the aviation industry were unconstitutional. The applicants claimed that those privileges constituted unfair tax advantages discriminating against other means of transport, such as rail. This petition was ultimately rejected by the Court on formal grounds without substantive examination.

In a more recent proceeding – currently primarily involving public international law – one of the applicants who failed before at the Constitutional Court (cf. above), has filed a suit against the Republic of Austria before the European Court of Human Rights (ECtHR). The plaintiff, who is very sensitive to changes in temperature and suffers from multiple sclerosis, argues that the climate crisis (rising temperatures) constituted a health hazard. He claims that Austria took insufficient action to tackle climate change and, in doing so, breached its duty to protect the plaintiff in accordance with Article 8 ECHR. Should the ECtHR find in favour of the plaintiff, this could drastically spur climate change-related litigation in Austria and beyond.

These developments coincide with the proceedings for a preliminary ruling currently pending before the ECJ (C-61/21) concerning the question of whether (and, if so, under what conditions) individuals can claim compensation for damage caused to their health from the state where that state is in exceedance of the respective limit values. The Advocate General’s opinion appears to affirm such a basis for claim. One will have to wait and see how the Court will decide.

Litigation Funding 

In line with a general trend, some of the aforementioned cases were funded through either crowdfunding or by institutional funders. Indeed, litigation funding (e.g. traditional third party funding, crowdfunding or funding via associations with the purpose of supporting/funding certain lawsuits) is gradually gaining importance in the Austrian market.

This trend has also spurred a discussion on the involvement of law firms and lawyers in the funding of lawsuits. This is to be seen in light of the ban on quota litis agreements (pactum de quota litis) between a member of the legal profession and its client, which is set forth in the rules of professional conduct governing lawyers in Austria and the parameters indicated by the CCBE. Consequently, in the case of direct personal or economic connection between the funder and a member of the legal profession, the options for structuring funding agreements are limited. The same principle also gives rise to discussions on the extent to which a funder may exert influence on the respective proceedings.

Collective Redress and Mass Proceedings 

The incline of litigation funding can also be expected to further increase the prevalence of mass proceedings. This is also contributed by recent case law, both by the Austrian courts as well as by the ECJ. One example is the ECJ judgement of 28 April 2022 (C-319/20), which not only confirmed consumer protection associations’ capacity to sue for data protection infringements (upholding the 2019 “Fashion ID” decision C-40/17), but also and more importantly held that consumer protection associations may bring collective actions in this context (i) without an express mandate and (ii) without identifying a specific data subject whose rights were (allegedly) breached. This decision alone could result in a significant increase of GDPR-related actions both in terms of administrative proceedings as well as in terms of (mass) assertions of civil claims such as non-material damages pursuant to Article 82 of the GDPR. Relevant stakeholders in this regard are not underrepresented in Austria.

New Legislative Draft Concerning Life Insurance Policies and the “Perpetual Right of Withdrawal”

Less litigation might occur in relation to the so-called “perpetual right of withdrawal” established by the Austrian Court of Justice and the ECJ for certain constellations where life insurance policyholders were not (properly) informed about their statutory right of withdrawal. The draft is meant to clarify the existence and requirements of this perpetual right of withdrawal as well as the extent of the related recovery claims (it was unclear in the past whether the insurer had to reimburse the insured only for the cash value or had to pay back the premiums in full).

New Case Law on Internal Control and Directors’ and Officers’ Liability

In the second half of 2021, the Austrian Court of Justice rendered a decision pertaining to D&O liability in case of a cyber-attack / CEO fraud (8 ObA 109/20t). In this decision, the court defined and clarified both the relevant scope of the duty of care as well as the requirements for a company's internal control regime. The decision sets forth relatively strict due diligence requirements for managing directors, especially with regard to the ongoing development and adaptation of the internal control regime in relation to new (known) forms of cyber-fraud and associated risks.

As the number of cyber-attacks has increased considerably over the last few years with no end of this trend in sight, litigation relating to executive liability (and possible D&O insurance coverage) can be expected to increase in the months to come.

SPACs, Inflation and the War on Ukraine 

The medium and long-term effects of the war on Ukraine cannot be predicted at present; however, the first effects are already clearly noticeable. This is true, inter alia, for inflation, which is currently estimated to be at least 7 per cent and brings about a multitude of possible disputes (e.g. issues relating to force majeure or price-adjustment clauses in long-term contractual relationships).

Special Purpose Acquisition Companies (SPACs) still play a relatively small role for different reasons. However, the appetite of foreign SPACs for Austrian targets appears to be growing and developments can be expected in the years to come.