1. Prof. dr. sc. Edita Čulinović-Herc, Faculty of law, Univerisity of Rijeka
Dipl. iur. Mihaela Braut, Faculty of law, University of Rijeka
MASS SHAREHOLDERS’ CLAIMS v. LISTED COMPANIES: GLOBAL, EUROPEAN AND CROATIAN PERSPECTIVE

2. INTRODUCTION
Capital market requests higher level of investors’ protection to enhance investment culture in general
Issuers/listed companies most often cause damages to investors when misleading them by making misstatements on capital market, whether in prospectus or in their financial reports
Dispersed ownership structure of listed compaines usually creates large group of investors on the plaintiffs’ side

3. INVESTORS’ PROTECTION
1. INDIVIDUAL PROTECTION OF INVESTORS’ INTERESTS
2. COLLECTIVE PROTECTION OF INDIVIDUAL INVESTORS’ INTERESTS

4. INDIVIDUAL PROTECTION – MAIN CRITICISM
- Ruling in individual litigation has the effect only for the litigants of that proceedings
- it will not affect any other investor suffering
the same damage
- it will not prevent issuer of further
fraudelant conduct
- court can obtain two different rulings in two separated proceedings, although based on the same facts
- Individual protection is time and cost ineffective for the parties and the court

5. COLLECTIVE PROTECTION - 4 TYPES-
1. CLASS ACTION
- The U.S. –
2. OPT-IN GROUP LITIGATION
- England & Wales -
3. MODEL CASE PROCEEDINGS
- Germany -
4. OPT-OUT SETTLEMENT PROCEDURE
- The Netherlands –
for investors who suffered comon damages

6. CLASS ACTION
OPT-OUT PROVISION –court’s ruling is binding upon all class members, regardless of their awarness about it
- CRITICISM - “ignorante passive loser”
CONTINGENCY FEES – NO WIN, NO PAY RULE - attorneys tie their fees to a percentage of the awarded recovery
- CRITICISM - lawyers are the most interested
parties in litigation

7. 2. OPT-IN GROUP LITIGATION
OPT-IN OPTION – ruling is binding only upon members who expressly opted in the group
- register of plaintiffs
- cut-off date
NO CONTINGENCY FEES – BUT LOSER PAYS WINNER’S COSTS

8. 3. MODEL CASE PROCEEDINGS
Interlocutory ≠separate proceedings
Solely in securities disputes
Complaint Registry – at least 10 similar claims higher court of instance
Model case ruling – binding and final to the lower courts bring decision on individual damages
Possible introduction of contigency fees in exceptional cases

9. 4. OPT-OUT SETTLEMENT PROCEDURE
Parties negotiate and settle the dispute out of the court
Apply to the court to confirm their settlement
Settlement is binding on the opt-out basis
NO CONTINGENCY FEES - prohibited in any form

10. CROATIA – LITIGANTS AND COMPETENT COURT
Right to sue - according to Capital Market Act claim can be filed by investors (→open list: shareholders, bondholders.. etc.)
Jurisdiction - depending on the personal status of plaintiff:
1.Municipal court (→ physical person) 2.Commerical court (→ legal person)
Who is being sued: listed company (additionally: members of the board, underwritters etc.)

11. CRITICS OF COMPETENCE RULES
Unsatisfactory solution: if jurisdiction of two different courts is established (which is possible) two differing judgments on issuer’s liability could be rendered
Risk: legal uncertainty
Suggestion: to change jurisdiction rules in Code of Civil Procedure
New solution: for capital market disputes → jurisdiction of commercial courts regardless of status of plaintiff

12. SUBJECT MATTER OF DISPUTE
Claimant suffered the damage because of:
false, inaccurate prospectus,
delayed or inaccurate publication of inside information,
inaccurate (false) financial statements

13. IS THERE COLLECTIVE ACTION FOR INVESTORS?
Collective action – only in consumer protection law
i.e. representative action of consumers’ association (udružna tužba)
Type of protection:
Protection of collective consumers’ interests (not individual)
Prohibitive judicial protection (→ trader is forced to stop with wrongdoing)
Compensation of individual consumers’ damages is unavailable

14. COULD INVESTORS USE REPRESENTATIVE ACTION?
Investors could form an investors’ association
Government’s Regulation: investors’ associations are not listed (exclusive list)
Investors v. consumers
Overlapping concepts – retail (small) investors are similar to consumers
Overprotected?
Substantial difference: risk taking is inherent to investors, consumer are more focused on quality of consumption

15. EXISTING PROCEDURAL DEVICES
Concept of joinder – a person who is joining a party to a suit
Type of joindership: common (formal); substantial (material); unique (unison)
if claimants are unique joinders, the court should render the identical award towards all of them (not always the case)
Request for declaratory ruling – if claimants are not sure how strong is their case they would ask the court first to decide about respondent’s liability (if sucessful they would sue for damages)

16. PROPOSALS Jurisdiction – Commercial Courts as specialized courts
Introduction of group action - group of investors entitled to sue for damages
Opt-in option – investors have to expressly opt into the group
Complaint Registry – public, containing all similar claims

17. Marc Gertl and others v. Daimler Chrysler
The biggest currently going model case in Germany
The facts / cronology:
1st Feb 2005 – president of the board in a letter to president of the supervisory board announces his resignation of the mandate before expiration
16th May Marc Gertl sells 100 Daimler shares 31,85 EUR/per share
“Sometimes” in May 2005 – president of the board (Mr. Jurgen Schrempp) in a conversation with a president of the supervisory board tells him that “he leaves the mandate at the disposal”

18. Marc Gertl and others v. Daimler Chrysler
28th July 2005
9:00 Marc Gertl sells 800 shares (36,50 EUR/share)
9:30 session of the supervisory board was scheduled
– the board accepts pre-temporary resignation of J. Schremmp and quaterly reports
10:02 – after closure of the meeting Daimler sends notice to BaFiN and stock exchange
10:32 – Daimler sends notice to DGAP (official register of information for listed companies)
After notice was sent → price of the share jumped at 40,40 EUR

19. Marc Gertl and others v. Daimler Chrysler
The law:
issuer is obliged to publish inside information without delay (the very moment it arises)
resignation before termination of the mandate is inside information that should be published immediately
Facts:
Marc Gertl sued for damages
100 shareholders joined him in a lawsuit
Alleged damage – price difference (between sell price in transactions before publication and stock market price after publication)
Plaintiff: damage occurred as a result of delayed publication of the inside information

20. Marc Gertl and others v. Daimler Chrysler
Plaintiff’s allegations: inside information came into existence after conversation of JS and president of Supervisory Board
Defendant’s allegations: inside information came into existence at the Supervisory’s board session
Compensation of damages depends on the court’s decision when inside information had occured
OLG Stuttgart: ruled for defendant
Supreme Court (BGH): annulled decision and returned it to the trial court
Case is pending before OLG Stuttgart