In recent years, securities class actions have developed at a rapid pace outside of the US as investors have increasingly sought alternative jurisdictions in addition to the US in which to pursue claims.
In recent years, securities class actions have developed at a rapid pace outside of the US as investors have increasingly sought alternative jurisdictions in addition to the US in which to pursue claims. Some jurisdictions have extended their legislation to capitalise on the development, which can, in part, be attributed to the result of the Morrison v National Australia Bank case in 2010. In Morrison, the US Supreme Court ruled that f-cubed actions (which involve a non-US shareholder, suing a non-US company, whose stock was purchased on a non-US exchange, bringing a case in a US court) were no longer allowed to be brought in the US.
Despite such developments, Switzerland has so far refrained from incorporating class actions directly into Swiss civil procedure and instead reflects the process of a class action closely within Article 105 of the Swiss Merger Act (SMA). The SMA has no minimum threshold to meet regarding the number of claims and provides compensation for damages for any company member/shareholder who has been disadvantaged during a transaction (merger, split or change of corporate form).
The decision of such a claim has legal effect for all company members/shareholders who have the same legal status as the plaintiff regardless of whether they were subject to the claim or not. It is possible for shareholders to file a claim for appropriate compensation and, as Alexander Vogel and Debora Kern of Swiss law firm Meyerlustenberger Lachenal highlight: “The court will verify whether the compensation offered to the minority shareholders in the merger agreement is equal to the fair value of the shares of the absorbed entity and, to the extent necessary, adjust such compensation.”
Another form of collective action and what might be termed a ‘group action’ can be processed under the Civil Procedure Code (Article 71), which allows for simple joinders. These consist either of a joint plaintiff comprising several parties, or an opportunity where several parties are sued as joint defendants; the result is not automatically binding. Alternatively, under the Collective Investment Schemes Act (Article 85), a representative individual may represent a group of investors and claim in the name of the group. Such a judgement is binding for all affected investors.
Third party funding of cases is permitted. Legal expenses are often covered by a legal expenses insurance policy but there is commonly a maximum limit to the cover provided. If costs for a plaintiff’s proceedings are paid by an insurance company, the plaintiff is not entitled to receive legal assistance.
Switzerland’s reluctance to incorporate class actions in a more obvious way may be due to the ‘principle party disposition’—a highly regarded procedure nationally which is relevant to all areas of civil law and enables parties to have direct control over the object of dispute. In an interview with World Radio Switzerland, Geneva lawyer Carlo Lombardini explained that the courts are reluctant to modify legislation that could encourage a sense of “because a loss has been suffered, it must be recovered”.
This is because in Swiss law, if one has suffered damage, one must prove that the damage was caused because of a violation of a duty or contract. There has been recent petitioning, however, for class actions to be allowed in Switzerland, particularly as they are believed to encourage corporate governance best practice. The Swiss government has been receptive to such opinions and in July 2013 it published a report that analysed collective action mechanisms across the world. This report will act as a point of discussion and may prompt the Swiss government to extend its collective redress mechanisms.
Although Swiss law does not explicitly allow securities class actions, there are ways in which it is possible to file collective action and seek redress. It is a jurisdiction to watch as it may well adapt its legislation to mirror more closely alternative class action legislation established in EU member states, such as the Netherlands. In addition to seeking these opportunities, custodians, fund managers and trustees are reminded to continue vigilantly monitoring securities class actions opportunities across the world. A lack of international participation is unlikely to be tolerated as analysis has shown that more than 25 percent of equities owned by Swiss investors are held in foreign shares.
Securities class action and tax reclamation services provider, Goal Group, predicts that securities class actions settlements in legislatures outside of the US will rise to $8.3 billion annually by 2020. However, it is also estimated that $2.02 billion of global investors’ rightful returns will be left unclaimed each year. While thorough monitoring across international jurisdictions can be a daunting prospect, failing to do so could result in legal action, an unfavourable risk when there are a number of services commercially available that minimise the complexity and cost of this activity. Such service providers can globally cover class actions in all markets, while managing on-going relationships with various law firms worldwide and a network of paying agents.
