"Securities class actions historically have been a U.S. phenomenon," noted Bruce Carton, vice president for Securities Class Action Services, during an ISS panel on international securities litigation on Feb. 16. "But last year, there was a surge in interest among global institutional investors in non-U.S. securities class actions."

However, many obstacles to investors remain, such as "loser pays" rules on attorneys' fees, bans on contingency fee arrangements, and limited pre-trial "discovery," that don't exist in the United States.

Nevertheless, these legislative developments are part of the growing globalization of securities litigation. In 2004, a record 29 foreign-registered companies were hit with securities class actions in U.S. courts, according to a study by PricewaterhouseCoopers. Meanwhile, more international institutions are serving as lead plaintiffs in American securities cases and are filing claims for shares of those settlements. These trends also reflect the increasing cooperation among shareholders across national borders. For instance, a coalition of international investors is suing News Corp. in Delaware over its decision to extend its poison pill without seeking shareholder approval.

Australia
Compared to other nations, Australia has a relatively long history of securities class actions. Those suits have been available since 1992 in Australia's federal courts. The number of lawsuits has been small but is growing, according to Ben Slade, a principal with the Maurice Blackburn Cashman law firm in Sydney.

In 2003, a court approved a $97 million settlement (plus legal costs) for investors in GIO Australia Holdings. Overall, GIO investors recovered about 60 cents on the dollar for their claimed losses.

Among the ongoing cases in Australia are those involving MediaWorld and Concept Sports, where investors sued over prospectus statements, and Aristocrat Leisure Limited (alleged failure to disclose information).

On Jan. 20, investors filed a class action lawsuit against Telstra, Australia's largest telecommunications company. The suit contends that Telstra violated listing rules when it gave a secret briefing about its financial woes to ministers in the federal government, which owns a 50 percent stake in the company, and then waited until the following month to disclose that same information to investors. Lawyers for investors warn that the potential damages in the case could total "hundreds of millions."

Like other British Commonwealth nations, Australia has a "loser pays" rule for attorneys' fees. In other words, investors face the potential liability of having to pay millions of dollars in corporate legal fees if their lawsuit is unsuccessful. In addition, there are less financial incentives for plaintiffs' lawyers to assume the risk of litigating these cases than in the United States. Contingency fee arrangements, a common American practice where plaintiffs agree to give their lawyers a certain percentage (e.g., 33 percent) of their total recovery, are prohibited.

However, lawyers may enter into "conditional fee" arrangements where no fee is owed unless the client prevails. Conditional fees can be set at the lawyers' usual hourly rates, but some Australian jurisdictions allow lawyers to recover an "uplift" of as much as 25 percent more than their usual rates. That increase is still substantially less than what American lawyers typically receive when they obtain a securities class settlement.

Another significant barrier is that Australian courts have not yet accepted the "fraud on the market" theory. That concept, which presumes that the market price of a security reflects all the publicly available information about a company, has been accepted in the U.S. for decades and spares investors from having to prove that they relied on particular misstatements or omissions by a company.

Canada
In Canada, most of the securities litigation has been in the province of Ontario, which is home to the Toronto Stock Exchange and most major Canadian companies.

On Jan. 1, new securities legislation took effect in Ontario. Most significantly, the law extended the right to sue for damages to secondary-market purchasers (i.e., any investors who bought shares from other investors, rather than through an initial public offering or takeover).

The amended law includes a "deemed reliance" provision for corporate misrepresentations made to the secondary market. In the past, Canadian courts have refused to accept the U.S. "fraud on the market" theory.

Prior to this year, there had been a few settlements ranging from $5 million to $100 million, said John Chapman, a partner with the Miller Thompson law firm in Toronto. There was one significant trial decision, in which the investors prevailed. However, that decision was reversed on appeal in December and may discourage other investors from filing lawsuits unless the original verdict is revived, Chapman noted.

The new Ontario legislation is similar to U.S. law, but it does include damage caps and various limits to discourage a proliferation of secondary market claims, Chapman said. For instance, officers and directors are protected by a damage cap (awards are limited to 50 percent of the defendant's compensation last year) unless there is a showing of fraud. Companies, even in cases of fraud, can only be ordered to pay as much as 5 percent of their market capitalization.

The law imposes a mandatory "loser pays" rule on secondary market claims, which will deter some investors from filing lawsuits unless they have a strong claim. At the same time, other factors will encourage more litigation. Contingency fees are permitted, class certification requirements are not onerous, and there is a group of increasingly active institutional investors that are willing to bring securities claims and use lawsuits to seek corporate governance changes.

At the ISS panel on Feb. 16, Chapman said he expects the new law will lead to "some significant amount of securities litigation in Canada," but notes that any increase will be limited because many large-cap Canadian companies are also listed on U.S. exchanges.

Those companies most likely will still face lawsuits in the U.S. courts, where the securities laws remain more favorable to investors. One recent example is Brampton, Ontario-based Nortel Networks, which was sued in federal court in New York by the Ontario Teachers' Pension Plan and other investors. Last month, the company agreed to a $2.47 billion settlement (in cash and stock).

Germany
In the past, investors had no class-action remedy and were required to bring individual claims against companies. This system has proved to be cumbersome and disadvantageous to investors. One prominent example is Deutsche Telekom, which was sued by investors over statements by executives about company assets before a 2000 share offering. The company resolved a U.S. class action for $120 million, but it has refused to settle with German shareholders, who are bringing more than 2,100 separate lawsuits.

In November, new legislation took effect that allows for investors or corporate defendants to seek the creation of a model case to resolve common legal and factual questions in various shareholder lawsuits. If more than nine applications for a model case in the same matter are received within four months, than a Higher Regional Court will convene a model case proceeding. After this court issues a ruling on common issues, then lower courts will then decide damages on an individual basis, according to Martin Heinsius and Markus Muller-Dott, who are attorneys in the Frankfurt office of DLA Piper Rudnick Gray Cary.

However, Germany has other provisions that discourage securities litigation. Contingent fees are prohibited, and the losing party is responsible for all the costs of the proceedings.

Israel
Investors can bring a securities class action in Israel if they can convince a judge that they have a "likelihood of prevailing." This provision "allows judges a significant filter" to limit the cases that go forward, noted Avi Wagner, a lawyer with Glancy Binkow & Goldberg.

More than three dozen Israel companies also have U.S. listings. Consequently, some of those firms have faced securities lawsuits in the courts of both nations. For example, NICE Systems was sued by investors after it restated revenue for 1999 and the first three quarters of 2000. The company eventually reached a $10 million settlement to resolve U.S. class claims and also agreed to pay $4 million to resolve an Israeli class action.

The use of such parallel proceedings may increase in the future. In August, the Israeli Knesset agreed to expand dual-listing rules to allow Israel companies that trade on the Nasdaq SmallCap market or the London Stock Exchange to also trade on the Tel Aviv Stock Exchange with no additional regulatory requirements.

In Israel, the statute of limitations (i.e., the required period for filing suit) is seven years, longer than U.S. law provides, so "it is possible that you will see some more class actions in Israel as lawsuits work their way through U.S. courts," Wagner said during the Feb. 16 panel.

Italy
U.S.-style securities class actions don't exist in Italy, but the nation does have a 1998 law that allows national consumer associations to demand that companies cease unlawful conduct. These associations can't claim damages on behalf of individual consumers, but they can seek a court order requiring corrective action by the company.

On Dec. 21, 2005, the Italian Parliament issued the "Decreto Risparmio," which calls on the government to establish within 18 months a set of mediation and arbitration procedures to compensate non-professional investors. Stefano Modenesi and Maria Silvia Casano, lawyers with DLA Piper Rudnick Gray Cary in Rome, said the implementation of this decree will depend on the results of the next national election in April.

Netherlands
Investors can't bring class actions under Dutch law, but they can join together to bring a collective action, typically through an association or a foundation, said Ellen Soerjatin, a partner with DLA Piper Rudnick Gray Cary in Amsterdam. Traditionally, monetary damages have not been available, but such a group can seek a court order to bring about change at a company.

However, new legislation took effect last June that allows for the creation of classes for settlement purposes.

South Korea
In 2004, South Korea adopted securities class-action legislation that was modeled after U.S. law, but the Korean law includes several significant requirements that have deterred lawsuits.

For instance, investors must assemble a class of at least 50 plaintiffs. In addition, those investors collectively must hold at least .01 percent of the defendant corporation's securities, which "might really be a big hurdle for potential claimants," said Y.J. Cho, a lawyer with Bae, Kim & Lee. The law also established a two-year grace period for companies to disclose accounting irregularities, and exempted firms with less than 2 trillion Korean won ($2 billion) in assets from liability for conduct before Jan. 1, 2007. Finally, the right of discovery is limited in Korea. Accordingly, some investors won't be able to obtain the corporate documents they need to build their cases.

So far, no class lawsuits have been filed successfully under the new law. As Cho noted, "the outcome in Korea may be explained as an overreaction to U.S. trends," noting the efforts by U.S. lawmakers in 1995 and 1998 to limit securities lawsuits.

However, individual investors in Korea have been filing an increasing number of lawsuits, which rose from 18 in 2000 to 326 cases in 2004.

Sweden
Sweden adopted class action legislation in 2003. Some observers predicted that it would lead to a flood of litigation, but that hasn't happened, noted Claes Rainer and Kennedi Akdogan of DLA Piper Rudnick Gray Cary.

So far, just one securities class action has been filed--by investors/policy-holders in Skandia Livs Asset Management, a provider of long-term savings and pension accounts. That company was acquired by Den Norse Bank in 2002, and the payment went to the firm's parent, Skandia. About 15,000 Skandia Livs investors sued in 2004, arguing they should have received that payment. That case is now in arbitration, and the investors have said that they may revive the class action if they don't fare well in arbitration.

Like other nations, Sweden has various legal rules that deter securities class actions. Contingency fees are banned and unsuccessful plaintiffs may be ordered to pay the defendant's legal costs. While the class action certification rules are similar to those in the U.S., Swedish law requires investors to "opt in" to join a class lawsuit. By contrast, the U.S. has "opt out" rules, which makes it far easier for lawyers and lead plaintiffs to assemble large groups of investors to seek damages for.

This article is derived from a Feb. 16 ISS panel, "Securities Class Action Litigation Moves Beyond U.S. Borders." The panel was hosted by ISS Vice President Bruce Carton and featured lawyers from around the world. To view of an online replay of this panel, please go here.