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In a recent judgment, the Austrian Supreme Court softened its settled case law on the uniform beginning of the limitation period for damages incurred by investors.
According to sec 1489 of the Austrian Civil Code (Allgemeines Bürgerliches Gesetzbuch), damage claims are time-barred within three years from the day the damage and the tortfeasor are known to the damaged party. Only, if the damage results from a wilfully committed criminal offence which can be sanctioned with at least one year of imprisonment, the statute of limitations will be prolonged to 30 years.
The Austrian Supreme Court regularly defines damage as any monetary disadvantage of the damaged party. An investor either has already suffered an actual financial loss or liability has arisen or is very likely to arise. Knowledge of the damage and the liable party is assumed as soon as the damaged party is able to successfully file a claim against the damaging party, even if the exact amount of the damage claim remains unclear.
Until recently, the Austrian Supreme Court applied the so-called “one-entity theory” (Einheitstheorie) to determine the beginning and end of the limitation period. Accordingly, the original cause of damage triggered a uniform limitation period for any foreseeable consequential damages. With regard to investors’ damages due to a breach of duty by a financial advisor, the original damage has frequently been deemed to be the purchase of a risky investment instrument (eg swaps, options and other derivatives instruments). In this case, the damage of the investor was the fact that he bought a high-risk instead of a low-risk investment.
The German Supreme Court chose a different path and developed the so-called “separation thesis” (Trennungsthese). According to this theory, different causes of damages trigger separate limitation periods. This means that in one proceeding a damage claim based on one breach of duty might be time-barred, whereas the limitation period for the same damage (in the same amount) based on another breach of duty might not have expired yet.
Recently, the Austrian Supreme Court chose to transfer the legal concept of the (German) “separation thesis” into Austrian law (3 Ob 112/15i). It ruled that the failure to provide advice on the loss risk of the invested money and the failure to provide clarification that pay-outs to the investor are not irrevocable profits but the repayment of contributions (and thus might have to be refunded by the investor), trigger two separate limitation periods. This judgment left many urgent questions unanswered and was hotly debated by legal scholars and practitioners. Fortunately, this controversy caused the Austrian Supreme Court to make some important clarifications in its most recent ruling on this issue (5 Ob 133/15t). Pursuant to this ruling, it is a prerequisite for the existence of different limitation periods that the damage claim is based on autonomous breaches of duty by the financial advisor and that such a failure was of significant importance to the investor.
Although the Supreme Court linked the existence of different limitation periods to certain conditions, its recent judgments are a remarkable shift in Austrian jurisprudence. There has also been an intense debate among legal scholars about the recent judgments and the admissibility of the separation thesis under Austrian law. It remains to be seen how Austrian courts will handle limitation periods in investor-related proceedings in the future when there is more than one breach of duty. In a worst-case scenario, claims that would already be time-barred pursuant to the earlier jurisprudence could now be filed successfully.
Different causes of damages may trigger separate limitation periods for investors' damage claims.
authors: Klara Kiehl, Philipp Wetter