QuickCounsel
Class Actions in Europe
Diego F. Martinotti, BAT Italia Spa
Overview
Current Status
Working Toward Uniform Regulation of Collective Redress in Europe
Conclusion
Additional Resources
Overview
Collective actions are in an experimental stage in Europe where there is currently an intense debate on the future shape that these actions will take. No European country has adopted a US-style class action so far and this is due to many reasons:
- Most of the European countries have a civil law system;
- There are no punitive damages, which are highly associated with class actions and with large monetary awards;
- The litigation costs’ scheme is different in at least three ways: a) many jurisdictions do not allow contingency fees, and therefore do not foster the enterprising way class actions are funded in the US; b) the “loser-pays” rule applicable in many countries in the EU discourages weak cases; c) most European jurisdictions have adopted the “opt-in” system in which the costs of notifying prospective claimants are high, need to be anticipated at the beginning of the proceedings, and are at risk of not being reimbursed if the case is lost;
- There is no American style discovery process. Under the adversarial system that governs the production of evidence in most European countries the parties bring the required evidence and the judge has no power to order a general disclosure of all relevant documents; and
- In the EU, enforcement of regulation is performed by public entities. The European Commission is willing to create an effective system of private enforcement through damages actions as complement to, and not a substitute for, public enforcement.
One country in Europe (Italy) has opted to name these proceedings after the American class actions by using a literal translation: “Azioni di Classe.” The European Commission has taken a different approach, detaching from the class action concept and referring to these actions as “Collective Redress”. In the words of the EU Commission, “collective redress” is a “broad concept encompassing any mechanism that may accomplish the cessation or prevention of unlawful business practices which affect a multitude of claimants or the compensation for the harm caused by such practices. There are two forms of collective redress: by way of injunctive relief, claimants seek to stop the continuation of illegal behavior; by way of compensatory relief, they seek damages for the harm caused.”
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Current status
Different forms of collective redress exist in Europe where no two national systems are alike:
Group Actions
Some Member-States have introduced group actions (which feature some but not all characteristics of US-type class actions). Within this category, we find three different types:
- Actions consisting of merely grouping individual actions into one procedure;
- Actions brought by a group of consumers; and
- Group actions that are brought by one claimant (individual consumer, consumer association or ombudsman) who seeks a decision on behalf of a group with equal or similar problems and gives the members of the group the possibility to enforce their rights in accordance with the decision.
Countries that have adopted group actions are: the United Kingdom in its so called Group Litigation; the German Capital Market Model Claim Act; as well as Spain and Portugal.
Representative Actions
Other Member States have introduced representative actions. A representative collective action is brought by an organization, a state authority or an individual on behalf of a group of individuals (not parties to the proceedings) and is aimed at obtaining damages for the individual harm caused to the interest of all those represented. Examples of representative actions are article 188 of the Bulgarian Law on Consumer Protection and article 10 par. 16 of the Greek Consumer Protection Act. Under the French Consumer Code (Article L. 421-1), a consumer association may seek compensation for damages done to the collective interests of consumers, and the damages are estimated by the Court.
Test Procedures
Finally, other European Countries have introduced so-called test procedures where an individual claim is adjudicated to become some form of precedent for future cases. In most civil law jurisdictions there is no stare decisis and, therefore, courts are not bound by the judgments rendered in similar (or even identical) cases involving other parties. Judgments of the highest court in civil law jurisdictions, however, do have an important de facto authority. These types of actions conduct only one model or test proceeding through all levels of the judicial system and await the outcome in order to follow its example to allow for settlement of similar cases. An agreement is needed in order for the defendant to recognize the judgment and waive the right of defense against the other plaintiffs. An example of test procedure is found in the Austrian test-case procedure. The Greek Consumer Protection Act (art. 10 par. 16 lit. d), is also a test procedure and it constitutes an exception to the traditional civil law system since it allows consumers associations to seek declaratory relief, along with liability for damages, with res judicata effect in favor of individual consumers.
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Working Toward Uniform Regulation of Collective Redress in Europe
According to the European Court of Justice, any citizen or business that suffers harm as a result of a breach of the E.U. antitrust rules (Articles 101-102 of the TFEU) should be able to obtain reparation from the party who caused the harm. To date, it has been too difficult for parties claiming harm in antitrust disputes to bring private actions for alleged infringements of competition law.
As a result, private claimants are seeking relief via national courts, in accordance with national procedural rules. The diversity of existing national systems and their different levels of effectiveness have raised concerns at the European Commission, which understands that the lack of a consistent approach to collective redress may undermine the enjoyment of rights by citizens and businesses, and give rise to inconsistent enforcement of those rights at the EU level.
Moreover, the Commission has individualized different barriers that European consumers face when pursuing a malpractice case that effects a very large number of individuals.
To mitigate these problems, the Commission has been trying for some time now to develop European standards for compensatory collective redress in the fields of consumer and competition law.
In 2005, the Commission adopted a Green Paper on “Damages Actions for breach of the EC antitrust rules,” aimed at identifying the main obstacles to a more effective system of damages claims, and set out different options to improve both “follow-on actions” (civil actions brought after a competition authority has found an infringement) and “stand-alone actions” (in which infringement is determined by civil judges on a case-by-case basis).
A White Paper on “Damages actions for breach of the EC antitrust rules” was issued in 2008 and proposes changes designed to implement an effective private enforcement system. The proposed policy choices meant to ensure that all victims of infringements of EC competition law are fully compensated for the harm suffered through effective redress mechanisms as well as to serve as deterrence against future infringements. The White Paper covers a broad range of topics, including standing, access to evidence, applicable law, fault requirements, damages, passing-on defenses, funding arrangements and collective redress mechanisms.
Also in 2008, the Commission issued a Green Paper on “Consumer Collective Redress,” which reported that the consumer redress situation in the EU was unsatisfactory since it did not allow large numbers of consumers affected by a single breach of the law to obtain redress and compensation. The Commission identified four options:
- No action by the Commission and, instead, rely on national schemes to address the issue;
- Cooperation between member states to ensure that countries with collective redress mechanisms open them up to consumers from other member states, and that countries without mechanisms establish one;
- A mix of policy instruments that includes: improving alternative dispute resolution mechanisms, extending the scope of national small claims procedures to mass claims, extending the scope of consumer protection cooperation regulation, encouraging business to improve their complaint handling schemes and taking action to raise consumers’ awareness of existing means of redress; and
- A Judicial Collective Redress procedure ensuring that every consumer throughout the EU would be able to obtain adequate redress in mass cases through representative actions, group actions or test cases.
In March 2009, the European Parliament adopted a resolution reflecting its comments on the European Commission’s 2008 White Paper.
In sum, the European Parliament favored:
- Out-of-court settlement procedure for mass claims,
- Clearly delimited groups of claimants in collective claims,
- Avoiding abusive litigation, and recognizing the “passing on” defense (if proved),
- Giving victims access to documents of the EU institutions (European Parliament, Council and Commission).
The European Parliament opposed:
- Decisions of National Competition Authorities being automatically binding on the courts of other Member States,
- Severing joint and several liability for cooperating witnesses (leniency program).
The European Parliament’s continuing concerns included:
- The consistency with other non-contractual claims and with collective redress mechanisms in other fields (e.g. consumer law);
- That harmonizing measures might lead to arbitrary or unnecessary fragmentation of procedural national laws.
Concerned with possible inconsistencies between the different initiatives, the Commission launched in 2011 a horizontal public consultation named “Towards a Coherent European Approach to Collective Redress.” The purpose of the consultation is to identify common legal principles on collective redress and examine how they could fit into the EU legal framework and the legal orders of 27 Member States.
The consultation was preceded by a joint information note of the Commissioners for Justice (Viviane Reding), Competition (Joaquin Almudia) and Consumer Affairs (John Dalli) who are collaborating to agree on a joint policy. A public hearing was held on April 5, 2011 in Brussels and the consultation was closed on April 30th. Next steps shall include the presentation of the results of the consultation and the Commission’s suggestions for moving forward. As already anticipated by the three Commissioners, any legislative initiative in this field would be preceded by an impact assessment.
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Conclusion
The Commission is defining the way in which collective redress is to be harmonized in Europe, and is, therefore, moving toward introducing legislative initiatives in this field. In doing so, the Commission has clearly stated that it intends to detach itself from the US-style class action system which it sees as an instrument for abusive litigation. The policy choices that the Commission seeks are balanced measures rooted in European legal culture and traditions.
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Additional Resources
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Published June 1, 2011
