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Class actions in Europe – the fear of the unknown?

Charlotte Leskinen

December 12, 2008

Recently the European Commission published a Green Paper on Consumer Collective Redress which provides options for how to facilitate redress in situations where large numbers of consumers have been harmed by a single trader’s practice which is in breach of consumer law. A survey requested by Directorate-General for Health and Consumers suggests that 76% of consumers in the EU would be more willing to defend their rights in court if they could bring an action together with other consumers.

Breaches of the EC antitrust rules fall outside the scope of the Green Paper, but the recent White Paper on Damages actions for breach of the EC antitrust rules also proposes the introduction of collective antitrust damages actions, namely representative actions, which would be brought by qualified entities on behalf of some or all of their members, and opt-in actions in which victims expressly decide to combine their individual claims into one single action. However, similar to the field of consumer law, it seems that there is a certain degree of hostility in Europe towards introducing class actions for damages that would be based on an opt-out mechanism, i.e. the possibility of bringing claims also on behalf of unidentified class members. It is a common fear that the introduction of class actions would lead to the adoption of a US-style litigation culture. For instance, the EU Consumer Affairs Commissioner Meglena Kuneva has expressly ruled out the US-style system of class actions for damages.

But also many antitrust practitioners and academics are strongly opposed to class actions. They fear that frivolous class actions might be brought and that defendants will be forced to settle in order to avoid paying large damages awards. Other features of the US civil procedure, such as jury-trials and treble damages, which can but do not always accompany a class action, are also often perceived as an inherent part of the class action. In fact, in the US, treble damages may not only be sought in antitrust class actions, but are also the result of a successful individual action seeking damages for an antitrust violation. In addition, it is often conveniently forgotten that abuses of the class action device mainly occur in other fields of law, while the complexity and uncertainty in the outcome of antitrust class actions tend to limit the abuses.

Moreover, the US Class Action Fairness Act of 2005 has further reduced the risks of abuses in that it provides, for example, that lawyers’ fees should also be aligned with the awards made to class members in coupon settlement cases, thus aiming to reduce the incentives for lawyers to accept settlements which are not in the best interest of their clients. Parties and their counsel can also be sanctioned under Federal Rule of Civil Procedure 11 for bringing frivolous cases. In addition, individuals who have not opted out from the class action in time will be given a second opportunity to do so when a settlement is proposed so, usually, they should not be bound by the outcome of an action against their will.

What is more, although opt-in collective actions (which seem to be one of the preferred alternatives in the European context) might to a higher degree ensure that an individual will not participate in litigation against his will since he must choose to join the action in order to be bound by the outcome, they do not necessarily guarantee a constitutional right of access to justice. This is so because in cases where the individual claim would be too small to be individually enforced it is, in practice, impossible for all individuals to enforce their rights. In these situations their constitutional right of access to justice would, in fact, be better guaranteed in the opt-out model. In the worst-case scenario the claimant would be left without any compensation, which would have been the case also if the action had not been brought on his behalf since the individual claim would have been too small to be enforced individually, whereas in the best-case scenario he would receive at least some compensation for the loss that he has suffered.

The opt-out model should therefore not be completely ruled out for all situations before having carefully studied its advantages and drawbacks and trying to adapt the possible legal remedy to the European reality instead of basing the rejection on prejudices and fear of the unknown. For instance, although Australia and certain Canadian provinces have chosen the opt-out model, the number of class actions brought in these jurisdictions has still been modest thanks to the scrutiny of courts.

It should also be borne in mind that, contrary to the US, in most EU Member States punitive damages are not available and damages actions are resolved by judges, not juries, thus limiting the uncertainty factor often involved in jury-trials. Similarly, the main cost rule in Europe is the “loser pays” rule, so there is always a financial risk in bringing an action in that the unsuccessful plaintiff must pay the other party’s legal costs. Contemplating making opt-out collective actions possible in situations involving small, not individually economically viable claims, would therefore not necessarily mean adopting the US-style class action model as such for antitrust damages actions. Instead, the possible collective remedy should be designed in a manner which would take into account the specificities of the European legal traditions and litigation culture in order to provide the victims of antitrust violations an effective redress mechanism.

As a final point I would like to highlight one drawback to only providing for representative actions (one of the actions suggested in the Commission White Paper): The limited financial resources available to consumer associations and other representative bodies are likely to restrain their possibilities of taking actions and there is a risk that they will only bring actions that they are certain of winning, while avoiding bringing complex, but meritorious, cases. In fact, representative actions have not been brought extensively despite that they are widely available in different fields of law in the Member States.

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