There has been much debate about whether a US-style class action system will ever truly arrive in the
UK and across
Europe. Opinions in
Europe are extremely varied, with some member states actively trying to lay the framework for group litigation. In March 2007 the Commissioner for Consumer Protection, Meglena Kuneva, announced the European Union’s (EU’s) Consumer Strategy 2007-13. She states: “I do not have in mind the
US type of class action. This is not a John Grisham story. We have another, European, narrative and this is much more related to collective redress.”
With the EU considering implementing an EU-wide system of collective redress, it seems the class action, even if not in US form, could be a step closer. This article will outline the current picture across Europe and assess the potential impact if a US-style system were ever to find a foothold here.
As you will be aware, a class action is a mechanism for numerous plaintiffs with a common issue to pursue their claims in a single action. US class actions are famous for direct advertising and emailing, contingency fees, civil trial with juries, discovery and pre-trial witness depositions, the losing party not paying winner’s costs and punitive damages.
Since their introduction in the US in 1938, class actions have grown exponentially. Shareholder settlements have risen by 37% in the past year. In 2006 there were four multibillion-dollar shareholder settlements and the average shareholder class action was $86.7m (£42.3m). The effect is obvious as rates for directors’ and officers’ liability insurance in the US are six times higher than in Europe.
Should Europe be frightened? Our own recent research among senior managers and directors highlights some of the perceived fear associated with class actions among UK companies. Not surprisingly, two-thirds of respondents thought that a US-style class action system would have a negative effect on UK businesses.
The European approach has traditionally been very different to that in the US. Are times changing and will people in Europe soon be able to obtain the same rights of action as their US counterparts?
England and Wales
In England and Wales, the mechanism for class actions is the group litigation order (GLO). Since 2001 there have been 59 registered, including 15 on abuse in care homes, seven on nuisance and seven seeking redress from failed tax schemes, but they are notoriously difficult to register. For example, in March 2006, the GLO was ruled inappropriate to seek redress for the mis-selling of investments by financial advisers.
But the GLO is not the only route, as proved by the 2005 Railtrack shareholder action against the UK Government for allowing Railtrack’s insolvency. Fifty-thousand shareholders stumped up a total of £3m of their own money to fund legal costs, but the claim failed. While England and Wales have the basic mechanisms the careful application of the rules by the courts have prevented an explosion of GLOs.
France
France has toyed with class actions since January 2005. A draft bill for ‘group actions’ was submitted in November 2006 by the French finance minister, Thierry Breton, as part of a new Consumer Protection Law.
Both the Socialist Party and the Gaullist-Liberal UMP party announced their intention to proceed after the presidential elections, but it remains to be seen whether new president Nicolas Sarkozy proceeds as planned, or if its popularity will fade.
Germany
Germany is a strong contender for the European model with its ‘Kap-Mug’, which allows for the testing together of common issues of fact or law in securities claims.
In the US the shareholder class action against Deutsche Telekom settled for $120m (£59m) while the 15,000 individual German claimant shareholders had no such redress. The ‘Model Law’ was introduced as a result of the uproar that ensued. Since then there have only been eight registered cases and, with no similar remedy for civil law proceedings and none proposed, Germany is falling behind the latest class action fashion.
Italy
Italy is witnessing an explosion of political interest in class actions. Since July 2006, nine class action bills have been proposed by parliamentarians reacting to the huge monetary losses to investors from the Cirio and Parmalat bond scandals. Although the new bills restrict ‘standing to sue’ to consumer associations only, there are more radical proposals in the pipeline.
Since January 2007, Italy has lifted the ban on contingency fees and mooted the concept of punitive damages. Consumers’ associations are currently gathering evidence to file a claim against major oil companies for more than E4.4bn (£2.9bn) in damages for petrol price-fixing as soon as these bills become law. Italy is the one to watch.
The Netherlands
The Netherlands is currently Europe’s closest representative of the ‘class action’ with the 2005 Act on Collective Settlement of Mass Damages introduced for ‘mass disaster accidents’. Its representative actions are famously successful. In January 2007, Dexia, the Franco-Belgian bank, agreed to pay E400m (£267m) in compensation to Dutch customers after Dutch investor associations sued for alleged mis-selling of investment products. The Netherlands is well respected by the European Commission for its systems of collective redress.
Spain
Spain is by far the most liberal European jurisdiction in its support for contingency fees and the advertising of actions in the media, but the Spanish approach lacks the consistency to be a model for reform.
Spanish investors are the recent victims of a possible massive ‘postage stamp’ fraud carried out by unregulated investment companies. Their cause has been taken up by the National Institute for Consumption with such vigour that it could well shape Spain’s approach to future actions. Currently there is no legislation on the horizon.
Ireland
In Ireland, the Department of Defence is lamenting the lack of multi-party procedure. The total amount spent on army deafness claims brought by individuals is in excess of E280m (£187m), with E185m (£124m) being spent on awards or settlements and E94m (£63m) on legal costs — and it is still ongoing.
In the 19th century Ireland was scornful of the English approach, with the Irish judge, Sir James Mathew, commenting: “In England, justice is open to all — like the Ritz Hotel.” Now Ireland’s Law Reform Commission sees the English GLO as the model answer, but Ireland is yet to reform.
Country comparison
EU jurisdictions have a long way to go before US-style class actions take hold. Of the countries cited above:
- none have the unpredictability of juries for civil matters or punitive damages (although Italy is considering them);
- only Spain and Ireland have advocated contingency fees (although Italy has become a recent convert);
- only the UK has extensive discovery, although the Netherlands has adopted a specific discovery approach, and no EU countries have pre-trial depositions;
- most prohibit client soliciting (although Italian lawyers can now advertise their contingency fee approach); and
- all except the Netherlands operate the opt-in approach.
Kuneva is advocating a new legal basis for consumers across Europe to join forces in actions through the 27-country single market. She believes that such a proposal will boost the confidence of consumers across borders.
An EU directive imposing mechanisms for consumer class action rights across the EU will come as a shock to many EU states. As the summary above illustrates, the class action processes in the larger EU states are either non-existent or relatively undeveloped when compared with the US.
The challenge for Kuneva will be to balance giving large groups of consumers the right to obtain redress while ensuring that this does not lead to an explosion in unnecessary and speculative actions that are only likely to benefit the lawyers.
David Webster is head of Eversheds’ European insurance group. He was assisted by Eversheds’ offices in Paris, Milan, Munich, Madrid and Dublin.
