EC finally launches collective redress consultation but is against US-style class actions

The EC has stated repeatedly that it does not want any such reform to help develop a US-style mass tort system and introduce huge amounts of legal inflation and cost into the European legal system. It has done so again in the new consultation paper that was published February 4 and to which interested parties are invited to respond by April 30. A public hearing will be held soon after opinions are gathered. Europe’s risk management representative bodies such as FERMA will respond to the paper once they have digested the complex document. Despite the repeated assurances from the EC that it does not want to usher in US style legal mayhem into Europe, risk managers and wider business interests are worried that any action by the EC to make collective legal redress easier will inevitably spark litigation and claims inflation in Europe and raise the cost of insurance and business in general. hideThe formal process commenced last week as the Commission launched a public consultation that it said is, ‘aimed at achieving a coherent approach towards collective redress in the European Union.’ Yves Botteman EU Competition partner and Guy Soussan, EU Insurance Partner, with Brussels-based law firm Steptoe & Johnson and advisers to FERMA explained the background. They explained that originally two separate initiatives were pursued by the EC, one that covered consumer redress and the other collective redress for antitrust violations that affect consumers and businesses. In 2009, the European Parliament pressed the Commission to achieve better coordination and a coherent approach among the different Directorate Generals that were involved and soon afterwards, the Commission withdrew the draft legislation on collective claims against antitrust violators, they said. Then last year the Commission issued an information note that was adopted in October and set out the path for a coherent collective redress mechanism in the European Union. The latest and ‘carefully crafted’ consultation should lead to a communication where, it is hoped, the general guiding principles for possible initiatives at EU level will be outlined, said the two lawyers. “So far, the debate on collective redress was focused on one field of law or one possible class of victims. The new public consultation seeks to take the matter from a different perspective. It is geared towards identifying common denominators for collective redress across multiple fields of EU law,” explained Mr Botteman and Soussan in a collective response to Commercial Risk Europe. “Yet, there is recognition that each field of EU law may require specific mechanisms. But, for now, the focus seems clearly on finding these common denominators. At a later stage, each Commission service may have to consider whether and which types of legislative or non-binding instruments, such as guidances, might be considered appropriate for their specific policy or sector such as environment, health, financial services and competition,” they continued. The EC explained last month that, as the guardian of the EU Treaties, its duty is to enforce EU law but at the same time individuals and business can seek enforcement of their rights under EU law in national courts. It noted that in some cases, the violation of EU law may trigger multiple individual lawsuits. Current EU law already provides for the pursuit of collective actions for injunctions in the field of consumer law. But the EC pointed out that national legal systems ‘vary considerably’ across sectors. The situation is even more diverse among Member States when several consumers or businesses want to seek damages in the same case, it added. “The Commission’s public consultation will therefore attempt to identify common legal principles that should underpin collective actions across the EU (such as the need for effectiveness and efficiency, information for citizens and safeguards against abusive litigation),” stated the EC. The EC stressed that it does not want to open the door for a US-style class action system in Europe with this move and trigger a flood of expensive claims against European companies as a result. “Collective redress is a broad concept that includes injunctive relief (lawsuits seeking to stop illegal behaviour) and compensatory relief (lawsuits seeking damages for the harm caused). It needs to be clearly distinguished from so-called ‘class actions’ that are common under the US legal system. In Europe, collective redress procedures can take a variety of forms, such as actions in court, out-of-court settlements, alternative dispute resolution mechanisms, as well as entrusting representatives with the enforcement of legal claims,” it explained as the consultation was launched. It also pointed out that collective actions for damages are already available in some Member States and so it is therefore launching a ‘horizontal’ public consultation to help provide a more coherent European approach to collective redress. The EC said that the purpose of the consultation is partly to identify common legal principles if a future Commission initiative were presented on collective redress and how these principles could fit into the EU legal system and into the legal orders of the 27 EU Member States. The consultation also explores in which fields different forms of collective redress (injunctive and /or compensatory) could have an ‘added value’ for improving the enforcement of EU legislation or for better protection of the rights of victims, stated the EC. “At the same time, the Commission firmly opposes introducing ‘class actions’ along the US model into the EU legal order, or creating incentives for abusive litigation,” it stressed again. Mr Botteman and Mr Soussan suggested that European risk managers do not have to panic yet and that collective redress systems are underway in a number of Member States already. “In parallel to this debate at EU level, which will probably take quite some time to reach the stage of concrete proposals, we should not lose sight of the fact that over the past several years, a number of Member States have made significant progress in adopting and implementing national schemes to achieve effective redress for large classes of claimants,” they said. “In addition, collective actions have been filed in national courts in the recent past, for example in the UK. Most lately, an action was filed in the Netherlands against members of the airfreight cartel fines. The case was filed by a company underwriting the costs of recovery proceedings against one or more airlines on behalf of European businesses that have sustained losses as a result of the alleged cartel. Those test cases will provide useful indications for the future success of collective damages actions in the EU,” added the lawyers.

EC finally launches collective redress consultation but is against US-style class actions

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