AUSTRIA: An Introduction to Dispute Resolution: Litigation
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 practice in 2022/2023.
Recovery from COVID-19 and the 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 (eg, 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. Many 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 (eg, 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 by half. The new provisions clarify some aspects of that privilege and also expand the privilege to other modalities of reaching settlement (eg, 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 and expires at the end of 2022. It has been prolonged by the legislature in the past, but despite steadily rising demand in this area has not yet made it into the permanent procedural framework of the Code of Civil Procedure.
Cyber Crime-Related Litigation
The extensive use of remote work during and after the pandemic led to a steady rise in cyber crime - and litigation relating to cyber incidents such as ransomware attacks (eg, under certain insurance policies such as Cyber, Cybercrime and D&O-Products). This development is confirmed by the figures of the Austrian Federal Criminal Police Office (Bundeskriminalamt), according to which, in 2021, a total of 46.179 cybercrime incidents were reported – twice as many as in 2018.
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) had 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, argued 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. It remains to await the decision of the court.
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 (eg, 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 about the extent to which a funder may exert influence on the respective proceedings.
Recently, the topic of litigation funding has also caught the attention of the EU parliament. Following a report by its legal affairs committee (the “Voss report”) and based in parts on a misunderstanding of the concept of third party funding, the parliament, on 13 September 2022, adopted a resolution with recommendations to the European Commission regarding the “responsible private funding of litigation,” including a draft EU Directive on the matter. The political motivation for more regulation in this area can easily be deduced from the proposal’s phrasing. However, it proves difficult to understand the reasoning in detail, especially as the authors clearly regard the involvement of funders as a threat to the justice system as a whole. Funders therefore criticise, perhaps understandably, not having been involved in the consultation process while at the same time pointing out that a "one-size-fits-all solution" such as the one proposed will not meet the stakeholders' actual needs. When reading the proposal, one also gets the impression that its authors are not aware of the positive effects of litigation funding, eg, in supporting economically disadvantaged parties to mitigate the cost risk, often only enabling the enforcement of claims that would otherwise not be asserted.
The developments on this project proposal, including the reaction of the Commission and the Council, cannot yet be predicted.
Collective Redress and Mass Proceedings
The incline of litigation funding can also be expected to further increase the prevalence of mass proceedings. Recent case law, both from the Austrian courts and the ECJ, also contributes to this. One example is the ECJ judgment 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 actions relating to Regulation (EU) 2016/679 (GDPR) 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 under-represented in Austria.
On the topic of 82 of the GDPR, other recent developments appear to be worth mentioning. As was the case in some other EU member states, thousands of Austrian companies received warning letters in 2022 by a particular claimant arguing alleged violations against her rights under the GDPR. In essence, the claimant argued that the use of the fonts library “Google Fonts” offered by Google LLC breached her rights (the rights of all visitors of the respective websites) as the service involved the processing of the visitors’ IP addresses by Google LLC. The claimant argued that this in itself gave rise to a claim for (non-material) damages under Article 82 GDPR.
A number of national courts have rendered decisions regarding the scope of Article 82 GDPR. A decision by the ECJ is, however, still outstanding. Irrespective of this, the claimant of the aforementioned “Google Fonts campaign” has meanwhile withdrawn all claims due to public pressure. Depending on the outstanding decision by the ECJ, more litigation relating to Article 82 GDPR can be expected.
Some industry observers regard the increase in litigation of mass claims in Austria as a result of (alleged) procedural-economic shortcomings of the Austrian instruments of collective legal protection. According to this view, although the Austrian-style class action (Sammelklage österreichischer Prägung) in particular is to be regarded as a valuable tool of collective redress, considerable obstacles for mass redress (eg, no senate composition due to lack of aggregation; individual examination of the claims asserted) remain. The implementation of Directive (EU) 2020/1828 on collective actions for the protection of consumers' collective interests may or may not bring about improvements in this regard. However, despite the transposition deadline (ending on 25 December 2022), the Austrian legislator has not yet created a legal basis. In fact, not even a draft had been presented to parliament by mid-December 2022. Therefore it will be interesting to await further developments in this regard as well.
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 11%. This means that the current inflation rate is even slightly above the level recorded during the first oil price shock in the 1970s and therefore brings about a multitude of possible disputes (eg, 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.