Burford recently teamed up with Fideres Partners to hold an informative breakfast seminar around the topic of securities litigation. We gathered together pre-eminent experts in the field, from major European jurisdictions, to discuss the most salient trends and challenges facing securities litigants across Europe.
Europe emerges as a forum of choice for investor recoveries
The leading takeaway from the breakfast was the fact that Europe has become an increasingly attractive venue for institutional investors to pursue recoveries against issuers accused of fraud.
There were a number of possible reasons posited for this, including: The increasingly systematic approach by investors to recover losses caused by corporate wrongdoing following Volkswagen; the widespread adoption of the EU’s transparency regime; and the availability of financing for large-scale litigation.
But perhaps the most significant factor driving an increase in securities litigation in Europe is cost. Litigation in continental Europe can be significantly less expensive than elsewhere, as most jurisdictions don’t allow for pre-trial discovery and many limit adverse cost awards. The Netherlands is particularly attractive, as there is no requirement to prove direct reliance on corporate misstatements and adverse costs are limited by statute to amounts that typically represent a small fraction of actual legal costs.
Shareholder litigation in Europe is less burdensome for investors—but is not without its challenges
There has been dramatically reduced access to the US courts following the Supreme Court’s decision in Morrison v National Australia Bank, which determined that US courts lack jurisdiction over securities cases against foreign companies listed on foreign exchanges. With reduced access to the US class actions regime, US investors have increasingly pursued securities litigation in European jurisdictions—where they face different burdens and challenges.
Because pre-trial discovery is more limited in most jurisdictions outside the US, the burdens on asset managers are generally lower than they would be in a direct action filed in US federal or state court. However, the inability to obtain discovery from defendants can also present barriers to recovery. Pleading standards and damages methodologies also vary in different jurisdictions.
Economic experts rely on US damages methodologies in European actions
Experts play an important role in formulating case strategy and supporting settlement efforts: They provide forensic analysis to identify the disclosures that caused statistically significant share price declines and estimate claimant damages . But there have been relatively few significant securities cases in Europe that resulted in final judgments and even fewer that have resulted in decisions from appellate courts, so there is little to no legal precedent in most European jurisdictions on the appropriate measure of damages. Therefore, European experts often run US-style market event studies to estimate damages based on the share price inflation attributable to the fraud.
As securities litigation matures in Europe, the approach experts take to damages may diverge from the US approach based on feedback from the courts. But for now, European experts look to the US for guidance.
The discussion touched on a number of the challenges faced by each of the experts in their relative jurisdictions, but overall the outlook for securities litigation in Europe was viewed in a very positive light. Given the ongoing developments in the region, it seems likely that Europe will continue to increase in popularity as a forum for these kinds of disputes. And because securities fraud litigation tends to be large-scale and inherently expensive to pursue, we anticipate that legal finance will become even more prevalent.