AUSTRIA: An Introduction to Dispute Resolution: Litigation

Dispute Resolution in Austria: an Introduction 

The Austrian court system and litigation practitioners are facing significant developments and changes, some caused by changing market conditions and some related to international trends that are gradually making their way to Austria. These developments are expected to have a considerable impact on litigation practice in 2024.

Reform of the Code of Civil Procedure  

In many areas of life, the pandemic has spurred reform efforts. This is also true with regard to the reform of the Austrian Code of Civil Procedure. Among other matters, the reform focuses on increasing procedural efficiency, with some measures relating to the further digitalisation of the judiciary and others aimed at improving access to justice. In June 2023, for example, the Austrian legislature adopted permanent versions of the COVID-19 era rules, albeit in a more limited form. Some of the most notable changes of the reform are outlined below.

A new (or rather extended) cost privilege is intended to further encourage parties to settle at an early stage of the proceedings by halving the court fees, and now includes other forms of dispute resolution (eg, certain settlements reached in the course of mediation proceedings initiated during a pending court case).

Another aspect concerns the creation of a permanent procedural framework with regard to remote hearings, introducing new provisions on the procedural framework for remote (or hybrid) hearings in civil matters. On the basis of this new framework, and with the consent of the parties, a court may hold hearings using videoconferencing software. The court will have discretion to decide whether to hold such hearings, taking into account the economy of the proceedings and the technical facilities available.

Cybercrime-related litigation  

The increased use of remote work during and after the pandemic led to a steady increase in cybercrime and, consequently, in litigation relating to cyber incidents such as ransomware attacks. This trend is confirmed by the figures of the Austrian Federal Criminal Police Office (Bundeskriminalamt), according to which a total of 60,195 cyber-incidents were reported in 2022, which indicates an increase of 30.4% compared to 2021. A (gloomy) study carried out by a major auditing firm predicts an increase in cyber-incidents of around 200% for Austria in 2023 as compared to 2022. As these incidents can easily have an enormously negative impact on the target company, quickly causing six- or even seven-figure losses (think business interruption, recovery costs, etc), and some companies may rely too much on taking out insurance alone without also increasing their cybersecurity set-up, a number of cases are pending regarding questions of insurance coverage under such products. This dynamic is also fuelled by the fact that threat actors are changing their methods from “decryption only” to publishing extracted data or even directly notifying the relevant authorities of the attack, before the target itself can or will do so (as recently seen in the United States under the new SEC Incident Disclosure regime). For these and other reasons, litigation related to cybercrime is expected to increase significantly in the coming months.

Climate change and ESG criteria  

The importance of environmental, social and governance (ESG) criteria as an additional means of assessing companies is evident. As a result, some banks, insurance companies and other large corporations are beginning to assess the ESG score of a customer, policyholder or supplier, and to incorporate these criteria into prospective or existing contractual relationships.

In a recent case, an applicant brought an action against the Republic of Austria before the European Court of Human Rights (ECHR). The plaintiff, who is very sensitive to changes in temperature and suffers from multiple sclerosis, claims that Austria has failed to take sufficient action to combat climate change and has therefore violated its duty to protect the plaintiff under Article 8 of the ECHR. If the ECHR rules in favour of the plaintiff, it could dramatically boost climate change litigation in Austria and beyond. At the time of writing, the ECHR had not yet ruled on the case.

Litigation funding and after the event insurance

In line with a general trend, some of the aforementioned cases were funded either through crowdfunding or by institutional funders. Indeed, litigation funding is gradually gaining importance in the Austrian market.

This trend has also led to a discussion about the direct or indirect involvement of law firms and lawyers in the financing of litigation. This has to be seen against the background of the prohibition of quota litis agreements (pactum de quota litis) between a member of the legal profession and their client, which is laid down in the professional rules for lawyers in Austria and in the parameters indicated by the Council of Bars and Law Societies of Europe (CCBE). Consequently, in the case of a direct personal or economic relationship between the funder and a member of the legal profession, the possibilities for structuring funding agreements are limited.

The issue of litigation funding has also attracted the attention of the EU Parliament, where the Legal Affairs Committee has published a report on some of the (perceived) challenges in this area (the “Voss Report”). The political motivation for more regulation in this area can easily be deduced from the wording of the proposal. The authors clearly see the involvement of funders as a threat to the justice system as a whole. Funders are therefore understandably critical not only of their lack of involvement in the consultation process, but also of the one-sidedness of the document, which completely negates the positive impact of litigation funding on meritorious claims that would otherwise not be brought because of the risk of incurring significant costs. The Commission has not yet initiated the legislative process for possible regulation in this area.

An alternative to the more traditional forms of litigation funding that is growing in popularity relates to after the event (ATE) insurance products. Typically, ATE policies provide financial protection against the potential costs of legal disputes, allowing the risks of legal disputes to be mitigated while offering a different “price” than third-party funding. Whilst the latter is generally free of charge to the insured party (usually, but not always, the claimant), ATE policies generally provide for an insurance premium to be paid without the policyholder having to surrender a percentage of the claim once it has been decided/awarded in their favour or once a settlement has been reached. ATE insurance products are a particularly interesting tool to consider in jurisdictions such as Austria, where the party losing a lawsuit is required to reimburse the winning party's legal costs. In this context, it can serve as a risk management tool, enabling policyholders to pursue legal action with reduced financial exposure. A related insurance product that is not yet widely known or used in the Austrian market is judgment preservation insurance, which can, for example, help a party to protect and monetise court judgments and arbitral awards against the risk of subsequent reversal or annulment on appeal or in other subsequent proceedings.

Mass actions  

The rise in litigation funding can also be expected to further increase the prevalence of mass actions. Recent case law from the Austrian courts and from the ECJ is also contributing to this trend.

Some industry observers see the increase in mass action litigation in Austria as a consequence of (alleged) procedural and economic shortcomings of the Austrian instruments of collective redress. According to this view, although the Austrian-style class action (Sammelklage österreichischer Prägung) in particular is a valuable instrument of collective redress, considerable obstacles for mass redress remain (eg, individual examination of the claims asserted).

Directive (EU) 2020/1828 on collective actions for the protection of consumers' collective interests has not yet been adapted by the vast majority of member states, including Austria. This is despite the fact that the transposition deadline ended in December 2022 and that such (non-existent) implementation should have entered into force by June 2023. However, at the time of writing, not even a ministerial draft had been published. In particular, the Directive provides for the introduction of a new representative action for damages to enforce claims for compensation. Its introduction could further strengthen the value of class actions in Austria significantly.