ECIPE study “The Impact of Increased Mass Litigation in Europe”

Mass litigation is on the rise across Europe and is reshaping the legal and economic landscape, with significant implications for businesses and consumers.

A new study developed by ECIPE and commissioned by EJF, “The Impact of Increased Mass Litigation in Europe”, examines how this trend is evolving, its potential economic consequences and presents policy recommendations to ensure fairness and balance in collective actions. For the first time, the macro-economic implications of mass claims were also reviewed.

The key findings can be summarised as follows:

• Collective action cases have surged across the EU, particularly in 2015 and again in 2020 onwards, with countries like the Netherlands, Portugal, Germany, and Slovenia reporting higher volumes. The rise of Third-Party Litigation Funding (TPLF) is contributing to this trend.
• Mass litigation entails substantial costs for businesses, leading to higher settlement costs, insurance premiums and compliance burdens, which can raise consumer prices and potentially hinder innovation, particularly with the introduction of private rights of action in EU regulations.
• Countries like the Netherlands, Portugal, and Germany have experienced a higher volume of mass litigation, partly due to their efficient judicial systems and institutional frameworks that facilitate collective actions. In contrast, Denmark, Lithuania, and Sweden have implemented safeguards to reduce the risk of unfounded litigation.
• A scenario-based analysis suggests that depending on the level of growth in mass litigation, costs could vary widely, with the high-growth scenario predicting private enforcement costs of up to €84.8 billion, market capitalisation losses for innovative companies up to €46.5 billion, and an increase in litigation costs as a share of claim value to 27.1%.

In light of these challenges, the report provides some recommendations to improve legal fairness and efficiency which, from EJF, we echo:

1. Shifting from an opt-out to an opt-in system, enhancing transparency in third-party litigation funding (TPLF), and reinforcing the loser pays principle to discourage speculative lawsuits.
2. Addressing inconsistencies across national legal systems to reduce forum shopping and ensure more predictable and balanced enforcement mechanisms.
3. Applying stricter criteria for forming a qualified entity to file collective action cases and excluding ad hoc entities or private persons as claimants.
4. Strengthening Ombuds Bodies and other ADR mechanisms to provide a cost-effective and efficient alternative to mass litigation for businesses and consumers.

The report concludes that the combination of the EU's burdensome and strict regulatory framework with increased private enforcement carries significant economic costs for businesses and for society. It is therefore crucial that policymakers carefully consider the long-term implications of an increasing mass-action litigation in Europe. The proposed measures are an important contribution to ensuring a better balance between justice, fair compensation for consumers and adequate protection for companies from opportunistic lawsuits, thus strengthening the EU's competitiveness.

For further information, access the full report and EJF’s cover letter below.