Collective redress likely to drive increased litigation in Europe

Calls for more effective collective redress mechanisms in Europe are growing louder and are likely to result in higher defense costs, settlements and reputational risks for European companies. Corporates will increasingly face the threat of litigation when their activities lead to harm, with big threats ranging from data breaches and environmental disasters to product recalls and unethical behaviour. Class action litigation in the US has been rising, with eye-watering jury awards for personal injury cases and record levels of securities class actions. Australia is also seeing unprecedented levels of class action litigation, which have driven big increases in premiums for directors and officers insurance. Europe too is now seeing a step change in its litigation industry, according to Henning Schaloske, partner and head of Clyde & Co’s German insurance practice in Duesseldorf. Litigation funders and tech platforms, in combination with new class action options, are creating a growing trend for collective redress. The net result will be increased liability exposure for commercial clients as the threshold for European consumers to seek collective redress is lowered. Europe is waking up to the need for more effective forms of collective redress, explained Mr Schaloske. Corporate scandals, including emission-test cheating in the automotive industry and strikes at Ryanair, have high-lighted the lack of effective class action mechanisms in Europe and individual member states. A growing number of countries – including Germany, the UK, Italy, Denmark and the Netherlands – have introduced mechanisms that allow consumers to collectively seek redress through the courts. Significantly, a proposed EU Representative Action Directive may soon require all member states to establish collective redress mechanisms for consumers. At present, only 19 EU member states provide some form of collective redress. Even where mechanisms do exist, they are often lengthy and costly. In Germany, corporate scandals have driven new ways to bring about collective redress in recent years. The VW emissions scandal, for example, led to the introduction of a class action framework for consumers with the Musterfeststellungsklage (Model Declaratory Proceedings). Actions against VW were launched on the day the legislation went live in November 2018. Previously, investor losses related to the floatation of Deutsche Telekom led to the introduction of a mechanism for shareholder collective redress in Germany known as KapMuG (Kapitalanleger Musterverfahrensgesetz). However, the proposed EU directive on collective redress, and recent changes in member states like Germany, are limited in scope and explicitly aim to avoid the perceived excesses and abuses of US class actions, explained Mr Schaloske. For example, the directive does not allow for contingent fees and limits group actions to qualified representative organisations, such as consumer groups, with law firms not allowed to bring cases. The Representative Action Directive could be adopted in 2020, although it would then need to be implemented by members states, explained Mr Schaloske. “There is political consensus that action should be taken and it is likely that we will see progress once the new commission is in place,” he told CRE. “The nightmare of the US litigation market has dominated the debate in Europe, and led to a gap in protection in member states. But we now see proposed legislation in Europe to address this and strike the right balance. If these measures prove insufficient, the trend suggests there will be more to come, or that legislative actions will be overtaken by platforms,” said Mr Schaloske. Many argue that the adoption of new collective redress mechanisms in Europe may be just the first step, and that these procedures could eventually lead to a wide variety of disputes, potentially including shareholder class actions. Already, the EU General Data Protection Regulation makes it easier for victims of privacy and data breaches to seek collective redress. There are a number of class actions filed in Europe following data breaches, including the 2018 incident at British Airways. Increasing regulation and enforcement around personal data and environmental protection are set to provide plenty of opportunities for plaintiff firms to seek collective redress across the world, including in emerging markets such as South Africa and Latin America, according to Duncan Strachan, partner in the global insurance team at law firm DAC Beachcroft. “As an example of what’s to come in England and Wales, the group litigation order was granted in the British Airways data breach case recently, which is being driven by a well-known US-backed claimant firm,” he said. Companies in Europe should expect an increase in the frequency and severity of collective redress, but not to the degree seen in the US, according to Mr Schaloske. “Defending and managing large-scale litigation is costly, and while some actions will be defended, others may be settled. This is a financial exposure, not only in defense costs but in terms of indemnification, and there is also a reputational and political dimension that could also add to companies’ exposure,” he said. In the US, just the threat of a class action is driving some corporates to settle. According to Jim Thurston, partner at law firm Wilson Elser in Chicago, there has therefore been a major increase in the number of actions being filed, as opposed to being trialled. Since 1995, there have been more than 5,200 actions filed, of which fewer than two dozen have actually gone all the way to trial, he said. “In other words, you don’t need a successful trial to get a settlement, and often, as soon as a claim is made, a company’s insurer may be willing to open settlement discussions,” said Mr Elser. Growth of class action suits and collective redress are being driven beyond the US, often backed by the country’s plaintiffs and litigation funders, according to Mr Strachan. The US remains the centre for class action suits of all types, but Australia and Israel are becoming hotbeds for similar suits, he said. Mr Strachan noted the increasing willingness of plaintiffs to bring large lawsuits in multiple jurisdictions, and the willingness of courts to accept jurisdiction. At the same time, the traditional protection provided by corporate structures and domiciles in “safe jurisdictions” is being broken down in countries like the UK and the Netherlands, with collective redress procedures evolving across Europe, he said. In recent years, there have been a disproportionate number of suits involving foreign entities listed on US exchanges, according to Mr Strachan. “While the US courts have put restrictions on the availability of class actions to foreign plaintiffs from certain countries, we would expect to see these barriers being broken down as other jurisdictions introduce their own procedures for collective address,” he said. 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Collective redress likely to drive increased litigation in Europe

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