The EU's impact on collective redress

For nearly twenty years the development of collective redress mechanisms has been on the mind of the European Union and, with every passing year, gaining momentum. On 11 June 2013 the European Commission adopted a Recommendation on common principles for injunctive and compensatory collective redress mechanisms in the Member States (the "Recommendation"). This led to the European Commission's initiation of a public consultation – which was open from 22 May to 15 August 2017 – in order to assess the implementation of the Recommendation in Member States. Hogan Lovells was an active participant in the public consultation, as were other contributors from Member States. The European Commission just recently published its report on 26 January 2018, analyzing the contributions received from the public consultation. The report concludes that the Recommendation made a valuable contribution in terms of inspiring discussions regarding collective redress mechanisms across the EU; however, it also concluded the practical impact would not be as strong as expected.

The European Commission's Report: an overview

Despite the effort of certain Member States to implement the Recommendation, the European Commission considered its effectiveness limited, and also took into account the uneven distribution of collective redress mechanisms across the European Union. There are, according to the European Commission, "inequalities and differences across the EU leading to a situation in which in some few Member States the affected persons or entities were able to bring their claims to justice jointly whereas in the majority of Member States they were left to insufficient devices or even helpless". This asymmetrical distribution includes:

  • Nine Member States (Croatia, Cyprus, Czech Republic, Estonia, Ireland, Latvia, Luxembourg, Slovakia and Slovenia) still do not provide any possibility to claim compensation collectively as per the Recommendation.

According to the report, "in the Member States where [collective redress mechanisms] do not formally exist there appears to be an increasing tendency of claimants attempting to seek collective redress through the use of different legal vehicles like the joinder of cases or the assignment of claims. This may raise issues concerning effective prevention of abusive litigation, since safeguards against abuse that are usually present in collective proceedings, e.g. concerning legal standing or contingency fees, may not apply in relation to such alternative avenues";

  • Where collective redress is available, it is primarily used in the area of consumer protection.

Moreover, in some Member States, which formally provide collective redress, those mechanisms are not always used due to "the rigid conditions set out in national legislation, the lengthy nature of procedures or perceived excessive costs in relation to the expected benefits of such actions";

  • Out-of-court dispute resolution schemes adjusted to the specific context of collective redress are not available in most Member States.

The report also argues that further development of collective actions might not come without risks, notably for businesses. In particular:

  • Designated representatives being able to file their claim before other Member States courts could incite to Forum shopping, especially in cross-border cases "as potential claimants will address their claim where the possibility for success seems higher". It may also result in double compensation or conflicting decisions;
  • Contingency fees and performance fees could encourage "unnecessary claims for unrealistic amounts"; and
  • Without any legal framework, unregulated third party financing could proliferate, creating potential incentives for litigation. Situations of potential conflicts of interest were reporting, for instance "the use of non-distributed damages for re-payment to the fund provider, organisation of the whole action by the fund provider, institutional relations between the law firm representing claimants and the fund provider".

The aim of the Recommendation was to strike an appropriate balance between ensuring sufficient access to justice, while simultaneously preventing abuses through the setup of appropriate safeguards. It now appears the European Commission is fully aware of the most recent litigation trends throughout the Member States which may affect defendants, particularly in cross-border cases. For more details on the report, click here to find an overview of the principal topics from the Recommendation with their respective assessments, addressed by the European Commission.

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While the Recommendation may not result in the metamorphosis originally intended, it does plan to take additional steps, specifically:

  • "to further promote the principles set out in the 2013 Recommendation across all areas, both in terms of availability of collective redress actions in national legislations and thus of improving access to justice, and in terms of providing the necessary safeguards against abusive litigation";
  • "to carry out further analysis for some aspects of the Recommendation which are key to preventing abuses and to ensuring safe use of collective redress mechanisms, such as regarding funding of collective actions, in order to get better a picture of the design and practical implementation";
  • "to follow-up this assessment of the 2013 Recommendation in the framework of the forthcoming initiative on a "New Deal for Consumers", as announced in the Commission Work Programme for 2018, with a particular focus on strengthening the redress and enforcement aspects of the Injunctions Directive in appropriate areas".