The possibility of an EU-wide framework for collective redress is approaching with the closing of the European Commission’s call for evidence on the implementation of the Commission’s Recommendation 2013/396/EU (the “Recommendation”) on 15 August 2015. The Commission will now proceed to formulate its report (the “Report”).
The Report is intended to gather together information about practical experience of collective redress systems across the EU, as the Commission is concerned to determine whether current systems are effective in giving consumers access to justice and enable them to recover damages in the context of: consumer protection, competition, environment, personal data, financial services and investor protection. The evidence collected will be used to determine whether legislative steps at EU level are required in order to impose a minimum procedural standard for collective action regimes in the EU. Although the 2013 Recommendation set out common principles for injunctive and compensatory collective redress mechanisms, it was non-binding.
The UK has a fairly developed collective redress procedure comparative to many other EU Member States. The primary mode of general collective redress in England is a Group Litigation Order (“GLO”), which allows multiple claimants having a cause of action raising common issues of fact or law to be grouped together and managed using specific procedural rules. Parties can apply for a GLO, or the court may make an order of its own initiative. GLOs are an “opt-in” procedure which requires each claimant to issue an individual claim before being included on the group register.
GLOs have been in existence since 2000, yet continue to be used sparsely with only 99 GLOs granted since inception. This is particularly evident in the product liability sphere which is fertile ground for class actions in the US, but such proceedings continue to be rare in the UK. This in part due to the differing approaches to funding, costs and damages, which mean that the UK is far less claimant-friendly for collective actions:
- In the UK, legal costs generally “follow the event” and so claimants can end up shouldering the considerable expenses of both sides in a failed claim (although different rules apply to personal injury claims). In the US, the starting point is that each party bears its own fees and costs.
- Although contingency fees have been permitted in the UK since 1 April 2013, lawyers can only agree to take up to a quarter of the damages awarded.
- In the UK, damages are strictly compensatory in nature, with punitive damages not available, so the amounts awarded in the UK in the type of claims which are popular for class actions in the US are far smaller, and can in many cases be smaller than the legal fees incurred.
The sole sectoral collective redress procedure in the UK is an “opt-out” regime for competition law claims in the Competition Appeal Tribunal (CAT) whereby claimants will automatically be included in collective action unless they opt-out. While it may be too early to pass judgement on this procedure, the Mastercard ruling may indicate that the Commission will approach this type of collective action with extreme caution (see our recent blog post on this judgment .
The potential for EU-level reform has concerned some, who fear a “US style” wave of collective litigation that is cheaper to resolve by settlement than litigation, irrespective of merits of the underlying claims, and the impact of this on reputation and branding. Management of this increased litigation risk is made more difficult by the fact that, presently, many EU jurisdictions prohibit suppliers from setting standard terms and conditions requiring consumers to opt-out of class actions and instead resolve disputes by arbitration (a solution upheld as enforceable in the US).
It remains to be seen what direction the Commission will follow in its Report, and any suggestion of broader class action rules and procedure will be subject to a high degree of scrutiny (and no doubt much commentary) across the Member States, although a full-blown US-style “opt-out” system is unlikely. If the Commission decides to introduce mandatory provisions, it also remains to be seen whether this will occur before the UK leaves the EU in 2019.