Details – expert information

Representative Actions

A wide variety of redress systems designed to deal with mass infringements exist across the EU, although most of them do not involve judicial process. This multi-dimensional landscape is being completely ignored, or underplayed, by adherents of the class action litigation system, even though this model has been shown to be the least effective in providing collective redress simply, cheaply and efficiently, compared to other dispute resolution mechanisms.1

The European Justice Forum calls on EU decision-makers to take into account the following considerations in order to design an efficient and fair collective redress mechanism across for the EU:

  • Early identification of mass problems;
  • Exchange of information on the problem to public/regulatory authorities and publicly accountable intermediaries such as Qualified Entities (like Ombudsmen), who are highly experienced in dealing with mass claims and empowered to resolve them efficiently via the relevant non-court pathways;
  • Providing easy access to such pathways including cross-border access;
  • Positioning court proceedings as a last resort.

[1] Delivering Collective Redress: New Technologies by Prof. Christopher Hodges, Oxford University and Prof. Stefaan Voet, Leuven University

Fundamental Issues with the Representative Actions Proposal


The Commission has proposed the Directive on Representative Actions in order to facilitate EU-wide class actions, based on a design extrapolated from the Injunctions Directive, but with minimal safeguards. In EJF views, there are at least four major issues to address:

More effective and efficient technologies are already available

Class litigation is “old technology”: it is complex, costly, lengthy and open to abuse, and it won’t have any impact on market behaviour. Empirical legal research has established that ADR, in its myriad forms tailored to Member States' internal models, ombudsmen or similar bodies, and regulatory redress, whether in combination or separately, score higher on effective redress criteria.2 Despite that, the Proposal for the Directive on Representative Actions ("the Proposal") is focusing on in-court litigation of mass redress claims. This is a missed opportunity to get it right and provides no incentives for Member States to improve their collective redress systems towards more efficient and effective out-of-court technologies.

Conflict with functioning national legal systems

The Proposal would oblige Member States to adopt court-based collective litigation mechanisms that will be in addition to their own redress systems. Some Member States, in particular the Nordic countries, have already developed sophisticated redress systems based on a regulatory approach and ombudsmen. Others, in particular Austria and Germany, have developed effective (preliminary and permanent) injunction systems. The Proposal inevitably leads to proliferation and potential duplication of systems, and increased complexity and confusion, risking the coherence of national civil justice systems. This is nowhere near the "Better Regulation" principle envisaged by the Commission in 2014 as underpinning its review of consumer law.

Wide disregard of the 2013 Recommendation’s guidelines on safeguards.

The Commission published on the 26th January 2018 its Report [3] on the state of adoption of the 2013 Recommendation and recognised that Member States adopted the safeguards proposed by the Commission in varying degrees and to different effects. Without Member States being bound by the full list of safeguards in the Recommendation, there is no chance that all Member States will adopt them and be in a way consistent with each other. The risk will be a “race to the bottom” in terms of safeguards and consequently of forum shopping. The Proposal is an opportunity to harmonize such safeguards, but it fails on this aspect given it does not include most of the Recommendation's safeguards.

Increasing legal uncertainty

The Proposal triggers a raft of technical issues regarding jurisdiction and enforcement, not only in the case of cross-border infringements but for any case where one or more Qualified Entities decide to try to launch cases based on similar facts in different Member States concurrently4. Multiple Qualified Entities could launch actions (absent an opt-in system to identify the plaintiff parties) in several Member States. There will be uncertainty as to which court will be competent and which procedure will bring finality. Without clear rules in the Proposal to identify the aggrieved consumers and lack of clarity on jurisdiction, there is limited value for companies to settle matters. These can resurface in further actions brought under the Proposal.

Moreover, the stringent cross-border architecture already developed via the CPC-Net, under which Member States are asked to appoint one single public authority as point of contact, is jeopardized. The Proposal introduces yet another layer of complexity and conflict between private and public entities.

[2] The criteria referred to (and most of which judicial process lacks) are: (1) consumer advice, (2) identification of infringement and harm, (3) triage (identification of people harmed, investigation of individual complaints), (4) establishing infringements, and redress where it is due, (5) access, (6) low cost, (7) short duration, (8) outcomes(not only compensation, but changing behaviour of the infringing party), and (9) constant interfaces (“virtuous feed-back loops”) with regulators.

[4] The Brussels Ia Regulation - Regulation No.1215/2012 of the EP and Council of 12 December 2012 on jurisdiction and the recognition and enforcements of judgments in civil and commercial matters (recast) does not address collective (“mass”) claims.

 

The following functions5 should be included in the process:

  • Bundling information powers: All entities (including Qualified Entities) that collect information on market activities should pool their data on problems in the market, so that systemic issues can be identified as early as possible.
  • Injunction powers: Any entity currently empowered by the existing Injunctions Directive to bring injunction proceedings should be required to inform the Qualified Entities (under the Proposal) that are authorized to claim damages of the existence of an infringement, in circumstances where similar infringements may also have occurred.
  • Qualified Entities must be transparently constituted, publicly accountable, independent, and impartial. They should pursue non-court mechanisms appropriate to the type of dispute.
  • Power to seek compensation (after failed out-of-court settlement) should only be exercisable by Qualified Entities.

[5] Response to the European Commission’s Inception Impact Assessment ‘A New Deal for Consumers – revision of the Injunctions Directive’p. 6-7, Professor Dr Christopher Hodges and Professor Dr Stefaan Voet  

How to solve the “Cross-Border Architecture” issue

Problem:

The Proposal does not specify how to deal with cross-border cases involving parallel court proceedings in Europe.

When claimants can choose to bring the same claim in different courts and countries, they will likely take the path of least cost, highest chance of success and potential for the highest recovery. Different claimants and their lawyers may reach different conclusions on where it is advantageous for them to sue. The dangers inherent in such forum-shopping, including multi-jurisdictional chaos resulting from different courts, procedures and laws, are mitigated by the Brussels I (Recast) Regulation for individual claims only. Brussels I does not apply to collective actions, as confirmed in the study published by the Policy Department for Citizens' Rights and Constitutional Affairs of the European Parliament for the JURI Committee. If there is no legal framework via which consumers can be sure to bring cross-border collective actions in a coordinated way, the question arises what Member States can do to create a proper, reliable, working, effective and efficient access to redress.

The adaptation of the Brussels I (Recast) Regulation to collective actions before the entry into force of an EU Collective Redress mechanism would be the ideal solution. However, in case the Directive is adopted without a prior amendment to Brussels I (Recast), an alternative solution would be needed.

Alternative solution:

The alternative solution must therefore be more attractive for consumers than relying on the litigation industry which prioritize returns to shareholders and lawyers who sign up to such funders.6 Extending the idea of Article 16(2) of the draft Directive on Representative Actions to cross-border cases would be an effective way to do so. While Art. 16(2) requires a court in the country of the defendant to join two parallel actions by different Qualified (Representative) Entities (QREs), or to decide which of the two QREs will lead on behalf of both, the same could be required in a cross-border case for one QRE in the Member State of the defendant. The only requirement would be an institution authorized to decide which of the QREs in the defendant’s country should be such “Consolidating Qualified Representative Entity” (CQRE). For more details and the whole model pleased read “Solving the Conflicting Collective Claims Cross-Border Conundrum” (members only).

[6] See e.g. for Germany Martin HENSSLER, Prozessfinanzierende Inkassodienstleister – Befreit von den Schranken des anwaltlichen Berufsrechts? – NJW 9/2019, p. 545-550.

Current research
Argumentation support

Topics

Third Party Litigation Funding

Third Party Litigation Funding (TPLF) is an arrangement whereby a third party, who has no other connection to the litigation, finances some or all of a party's legal costs in return for a share of any proceeds of the litigation.

read more

Members

Join EJF

Our services are based on three main pillars: policy and legal intelligence, research and academic input, and communication of key messages.

read more

Mission

Goals

EJF’s goal is to ensure that the Directive on Representative Actions will build a coherent and harmonized civil redress system architecture in Europe.

read more