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Media Briefing Note: EU Collective Redress – The Commission Launches its Long-Awaited Public Consultation

07 February 2011

LONDON, 7 February 2011 - On Friday, 4 February 2011, the European Commission launched a public consultation on whether new, EU-wide forms of collective redress should be introduced in order to strengthen the enforcement of European law.  The consultation paper, entitled “Towards a Coherent European Approach to Collective Redress”, is the result of recent collaboration between the Directorate-Generals for Competition (DG COMP), Health and Consumer Affairs (DG SANCO), and Justice.  It represents the Commission’s latest attempt to gauge and garner support for this type of potentially wide-ranging reform. 

The paper’s premise is that where a breach of European law harms a large group of citizens or businesses, individual lawsuits are often not an effective means to obtain compensation for the harm caused or to enjoin or deter future unlawful conduct. Individual victims are often reluctant to initiate private lawsuits, especially if the loss they have suffered is small in comparison to the costs of litigation.  The Commission proposes, therefore, that when a breach of EU law harms a multitude of citizens or businesses, it ought to be possible for their claims for redress to be bundled into a single collective redress procedure or, alternatively, for such a claim to be brought by a representative body acting in the public interest.  This, it is thought, could allow justice to be achieved at a reduced cost. 

Over the past decade, there has been increased debate in Europe of the merits and optimum mechanisms for redressing wrongs on a collective basis.  However, reform has generally occurred only at national level and the Commission clearly laments what it regards as the patchwork quilt of collective redress mechanisms which has emerged as a result.  The Commission is concerned by the lack of a consistent EU-wide approach on fundamental issues such as the optimum form of collective action, the restriction of such actions to certain industries or economic sectors, and the qualifications for determining who may participate, and suggests the lack of a uniform approach has reduced the benefit of EU laws to individuals and businesses in the EU.  The Commission highlights that both supporters and opponents of collective redress reform are united in warning against the inconsistency of approaches currently adopted in different member states. 

The Commission envisions developing a coherent European framework for collective redress which draws on the different national traditions of member states, fits into existing EU laws and legal tradition, and is grounded upon common principles.  Six such principles, previously announced by the Commission last October, are put forward for comment: (1) the need for effectiveness and efficiency of redress; (2) the importance of information and of the role of representative bodies; (3) the need to take account of collective consensual resolution as a means of alternative dispute resolution; (4) the need for strong safeguards to avoid abusive litigation; (5) the availability of appropriate financing mechanisms, notably for citizens and small-to-medium sized businesses;  and (6) the importance of effective enforcement measures.

The Commission is sensitive to concerns that a system of EU-wide collective redress will result in the abuses associated with US class actions.  In respect of “common principle” 4, it comments that:

“Any European approach to collective redress (injunctive and/or compensatory) would have to avoid from the outset the risk of abusive litigation.  Many stakeholders have expressed concern that they wish to avoid certain abuses that have occurred in the US with its “class actions” system.  This system contains strong economic incentives for parties to bring a case to court even if, on the merits, it is not necessarily well founded….Any European approach to collective redress (injunctive and/or compensatory) should not give any economic incentive to bring abusive claims.  In addition effective safeguards to avoid abusive collective actions should be defined.  These should be inspired by the existing national judicial redress systems in the EU Member States.”

As these principles suggest, the Commission will not limit itself to considering possible judicial procedures for redressing unlawful acts collectively.  It also seeks submissions on the appropriate roles for enforcement and watchdog bodies such as Ombudsmen and representative groups, the role of informal and alternative methods of collective dispute resolution, and whether existing EU initiatives on collective redress, primarily the Injunctions Directive (98/27/EC), could be extended. 

Tellingly, the paper does not advocate any particular solution to the perceived justice gap.  This is unlike, for example, the consultation paper published in 2009 by DG SANCO, which suggested that a test-case mechanism might be optimum for resolving consumer claims, or DG SANCO’s 2008 Green Paper, which controversially favoured opt-out forms of collective redress.  Instead, the paper poses thirty-four open-ended questions, grouped in categories mirroring the six principles listed above.  Public submissions on any or all of these questions can be emailed to EC-collective-redress@ec.europa.eu any time prior to 30 April 2011.   

For some, the Commission’s ‘back to square one’ approach, and the absence of concrete proposals for reform, despite four years of consideration by DG COMP and DG SANCO, will be frustrating.  This reflects the difficulty of resolving the competing concerns underlying the collective redress debate and the differences in opinion among DG COMP, DG SANCO and DG Justice, which only recently have begun.

While the Commission is committed to introducing an EU-wide collective redress mechanism, it would be wrong to assume it has already decided on the form it will take.  There is every incentive therefore to participate in the consultation.  The consultation closes on 30 April 2011.

John Meltzer, partner in Hogan Lovells' product liability and insurance team, said:

"There is no doubt that the Commission is intent on introducing an EU-wide collective redress procedure.  The only question is what form it will take.  The Commission has not yet made up its mind on this question and is genuinely considering all the options.  For this reason, I would encourage companies in all sectors of business to participate in the consultation process."

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