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EU proposals on collective redress

Werner Eyskens, and Brechje van der Velden, Allen & Overy Insight, February 22, 2011

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The European Commission has launched another consultation on proposals for collective redress. It is open until 30 April 2011. The consultation takes the form of 34 open-ended questions.

This is part of the Commission’s efforts over recent years to develop European standards for collective redress, in particular in the fields of consumer protection and competition law. However they are not limited to these sectors and could extend redress to small and medium sized enterprises.

The Commission adopted a Green Paper on anti-trust damages actions in 2005 and a White Paper on the same subject in 2008, both aimed at effective enforcement in antitrust cases. The White Paper became a draft directive which got within a few days of becoming law in 2009. It attracted controversy. For example, it would have given decisions of national competition authorities binding effect on the national courts of other member states (a decision of the Hellenic Competition Commission would have become binding on English courts). This and other controversies led to the directive being pulled. The relevant Commissioner subsequently changed, and little progress has been made since.

The Commission’s policy was (and remains) driven by a view that it continues to be difficult for consumers, particularly with relatively small claims, to pursue effective redress through the courts. The situation was, in the Commission’s view, made worse by the lack of a coherent collective redress mechanism across the EU, with half the EU member states having little or no collective redress mechanism. The mechanisms which were then available in 13 EU states varied hugely in both scope and the procedure.

On the back of the antitrust damages initiative, the Commission also published a Green Paper on collective redress in 2008. This proposal has turned out to be more controversial than expected. In October last year the following Commissioners met to discuss the way forward:

■ Vice-President Joaquin Almunia, EU Commissioner for Competition;

■ Vice-President Vivane Reding, EU Commissioner for Justice; and,

■ John Dalli, EU Commissioner for Health and Consumer Policy.

It appears that these Commissioners have not been able to reach agreement on the correct approach and policy. That, together with other priorities on the Commission’s busy agenda, has led to proposals being shelved, and brought back off the shelf, several times. A key area of disagreement is over the extent to which these proposals would cross over with other proposals for wider enforcement of national court judgments across the EU. The consultation now launched was originally intended to take place last Autumn, but was again delayed, it seems partly because of differences. The Commission has indicated that legislative action is unlikely this year not least because there is currently no provision for it in the work programme. Our view is that having now gone back to the stage of consultation, the whole process is likely to take several years.

The EU investigated a study in 2008, which found that 50% of those consulted would not bring a claim for less than €200. About 20% of those consulted would not bring a claim for less than €1,000. 76% of those consulted would be more likely to bring a case if a collective redress mechanism was available. The costs and complexity of litigation are cited as the main obstacles. The Commission believes that this is a significant barrier to effective enforcement of consumer and anti-trust rights. It is the Commission’s objective to bring in to place an EU wide collective redress mechanism, which would enable consumers (and others) to band together to bring an effective case in a cost efficient manner, wherever in the EU they are based. Perhaps recognising the practical and political difficulties of legislation to this effect, the EU is considering a range of responses between at the one end a general encouragement to national authorities to adopt effective collective redress mechanisms, to at the other end compulsion by EU wide legislation.

A significant part of the discussion focuses on the high costs of litigation across EU member states. The Commission is looking at funding alternatives, as well as modifications to the loser pays principle. Nevertheless, the Commission does recognise that in bringing in such proposals, there is a risk of encouraging nuisance and hopeless litigation. Preventing that harm can conflict with the objective of encouraging cost-effective collective redress. In this aspect of the proposals and the consultations there are echoes of the review of English civil litigation funding and costs carried out by Lord Justice Jackson, and the current proposals for implementation of his report in the English Civil Court Rules.

The Commission is also concerned at the lack of consistency of approach in civil consumer remedies and its ambitions to introduce a pan-European system of collective redress have behind them the same philosophy as the equally ambitious proposals for a single pan-European contract law. In its collective redress consultation, in part the Commission has in mind encouraging consumers to shop, online or otherwise, freely around the EU without concern that they will not be able to enforce their rights if they make a purchase based in another member state. Current EU collective redress mechanisms do adopt very different approaches, which illustrate differences of public policy. Some countries, for example France, have an objection to opt out regimes on public policy grounds. Others, for example the Netherlands, have no problem with opt out, but its regime only coverclass action settlements. Forum shopping is becoming more common, to take advantage of relative court speed or sloth, and of differing rules on issues such as disclosure of documents. The EU approach would be to try to eliminate such differences, which comes close to harmonisation of civil procedure, at least for collective redress and antitrust cases. In our view this is likely to prove too great a challenge.

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