The last two editions of the Class Actions Bulletin have followed the somewhat slow progress of the European Commission's latest initiative to explore whether a new, EU-wide form of collective redress should be introduced in order to strengthen the enforcement of European law. In the February 2011 bulletin, we reported on the Commission's launch of the latest public consultation on this issue. In the October 2011 bulletin, we noted that the consultation had closed in April 2011, but that the Commission would not issue a communication regarding the consultation's findings until the end of the year.
In the months following our last update, there has been a further development on the path towards bringing the past decade of false starts on this issue to a head.
On 2 February 2012, the European Parliament passed a resolution entitled "Towards a coherent approach to collective redress", which openly supported the introduction of an EU-wide form of collective redress and provided important guidance as to the shape such a mechanism should take.
The Commission is now working to prepare, as directed by the European Parliament, a concrete proposal potentially to be applied across Europe to any collective action with a cross-border element, as well as a detailed impact assessment for the Parliament's further consideration. Delivery of this next phase of the reform process is expected in the fourth quarter of 2012.
An EU-wide solution
The resolution of 2 February 2012 resulted from an own-initiative report put forward by the European Parliament's Committee on Legal Affairs and supported by opinions from the Committee for Economic and Monetary Affairs and the Committee for Internal Market and Consumer Protection.
In its recitals, the resolution expresses agreement with the earlier findings of the Commission's Departments of Justice, Competition and Consumer Protection, that the introduction of an EU-wide form of collective redress would be worthwhile. Thus, the recitals acknowledge that consumers "who wish to pursue a court case in order to obtain redress on an individual basis often face significant barriers in terms of accessibility, effectiveness and affordability", that individual lawsuits "may not constitute an effective means of stopping unlawful practices or obtaining compensation" in cases where "a group of citizens are victims of the same infringement", and that "victims of unlawful practices … must be able to claim compensation for their individual loss or damage suffered, in particular in the case of scattered and dispersed damages, where the cost risk might not be proportionate to the damages."
Whilst the resolution acknowledges that some European national governments have adopted their own collective redress mechanisms to address this perceived justice shortfall, it points out that cross-border claims might not be readily accommodated. More generally, it expresses the concern that unco-ordinated collective redress initiatives at the national level will result in a fragmentation of laws which will do European citizens more harm than good. The conclusion expressed by the European Parliament in passing the resolution was that "bundling claims in a single collective redress procedure … could simplify the process and reduce costs for the parties involved."
The resolution requested the Commission to draft a framework for a collective redress solution to be applied horizontally across all industry sectors, rejecting the sector-by-sector approach to collective redress reform that is being followed in England, for example. The framework proposal will include a common set of principles for providing uniform access to justice via collective redress for breaches of both national or EU law, provided there is a cross-border element.
The Commission has been told to support its proposed framework solution with a detailed impact assessment which, in order for the reform initiative to progress at the next stage of Parliamentary consideration, will have to demonstrate that action is needed at the EU level in order for victims of infringements of EU law to be compensated for damage they have suffered.
Interestingly, the Commission was also asked to analyse and identify which pieces of EU legislation in particular have proved unsatisfactory, in the sense that redress for breach has proved difficult to obtain in practice. To the extent that this analysis will pinpoint particular fields of law in addition to consumer and competition law, in which the need for an EU-wide collective redress mechanism is argued to be particularly acute, this may re-open the door to a sector-by-sector approach, rather than a truly uniform, horizontal solution.
The aspect of the resolution of most interest to observers, however, was its specification of particular parameters which the Commission was directed to follow when preparing the requested framework solution and impact assessment.
It is clear from the resolution that the fear of collective redress mechanisms heralding a litigious culture and blackmail lawsuits, of the kind commonly associated with the US class action system, resonates with European MEPs. On several occasions, the resolution invokes the oft-repeated warning that European legal traditions must not be eroded so as to allow the perceived abuses of the US class action system to take root.
Amongst the specific protections which the resolution mandates:
- the European approach to collective redress must be founded on the opt-in principle, and all members of the claimant group must be identified prior to the claim being issued;
- the courts must hold discretionary powers to bar the continuation of collective actions which do not pass initial checks of suitability for collective treatment;
- the courts should also have the power to order the parties to first seek a collective solution on a consensual basis through ADR;
- each individual claimant must provide evidence for his claim; and
- punitive damages, contingency fees and an obligation to disclose documents must not form part of the proposed framework (on the grounds that they are largely unknown in Europe).
If the Commission incorporates all of these safeguards against abuse, it will undoubtedly help to assuage the concerns of industry bodies who are at the highest risk of exposure to spurious collective claims. Potential defendants located in jurisdictions such as England, where punitive damages, contingency fees and onerous disclosure obligations are (or soon will be) part of ordinary civil litigation, will also be pleased at the suggestion that these features should be excluded from any European collective redress mechanism, since, typically, they are regarded as increasing both the likelihood of claims being made and the cost of defending them. This suggestion, however, is particularly likely to be contentious going forward, as member states may well oppose, strongly, the imposition of rules of procedure to be applied by the national courts that will hear these cross-border collective claims.
The Commission has indicated in its online schedule for actions to be taken in 2012 that a communication on the general principles of an EU framework for collective redress can be expected to be delivered in the fourth quarter of 2012. For many, the direction which the European Parliament attempted to stamp on the ongoing collective redress debate in February will be welcome, but it will be the Commission's delivery of concrete proposals later this year which will best indicate which direction the debate will take.