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Class Actions: Europe Opting in to Collective Redress Mechanisms

On 11 June 2013, the European Commission published a Recommendation calling on all member states to adopt collective redress systems for both injunctive and compensatory relief.  Member states are encouraged to implement the principles set out in the Recommendation within the next two years.  While the Recommendation is not binding, the Commission will assess its implementation and consider whether further action, including legislative action, might be needed to ensure its objectives are achieved.

Collective redress is a procedural mechanism that allows a number of similar claims to be grouped together into a single court action. It facilitates access to justice, particularly in cases where the damage on an individual claim might not be worth pursuing.  It also contributes to the efficient administration of justice by helping to avoid numerous court proceedings resulting from the same infringement of law.

The principles set out in the Recommendation apply to “mass harm situations” caused by violations of rights granted by EU law. A “mass harm situation” is a situation where two or more persons (natural or legal) claim to have suffered harm from the same illegal activity carried out by another person (natural or legal).

The principles set out in the Recommendation include:

  • Standing to bring a representative action: Non-profit making entities should be designated to bring representative actions.  There should be a direct link between the objectives of the entity and the EU rights alleged to have been infringed and the entity should have sufficient resources to represent multiple claimants. Only those entities designated in advance or certified for a particular action should be allowed to bring representative actions.
  • Constitution of the claimant party:  Persons must actively opt-in to become part of the claimant party and any court judgment or settlement reached will bind only those persons who have opted-in.  Persons should be free to leave or join the claimant party at any time before final judgment is given or the case is settled.  The defendant should be informed about the composition of the claimant party and any changes made.
  • Funding: At the outset of the proceedings, the claimant party should declare the origin of the funds that it proposes using to support the action. Where the funds are to be provided by a third party, the court should stay the proceedings where (a) there is a conflict of interest; (b) the third party has insufficient resources to meet its financial commitments to the claimant party; or (iii) the claimant party has insufficient resources to meet any costs order that may be made against it. A private third party funder cannot seek to influence procedural decisions of the claimant party. 
  • Admissibility: The courts should examine cases at an early stage to ensure that the conditions for collective actions are met.  Where the conditions are not met or where the action is manifestly unfounded, it should not be allowed to continue.
  • Cross-border cases: Where a dispute concerns persons from several member states, a single collective action in a single forum should be permitted.
  • Alternative dispute resolution and settlements:  Parties to a collective redress dispute should be encouraged to settle the dispute out-of-court and collective ADR mechanisms should be available to the parties.  The courts should confirm the outcome of any collective settlement. 
  • Prohibition of punitive damages:  Punitive damages should not be allowed.  Any compensation awarded to the claimant party should not exceed that which would have been awarded had the claim been pursued by means of individual actions.
  • Legal costs: The ‘loser pays’ principle should apply, ie the party which loses reimburses the legal costs of the winning party
  • Lawyers’ fees:  Contingency fees should not be permitted

We will keep you updated on any steps Ireland may take to implement the Recommendation, but one thing is clear, the flood gates to American style class action suits in Europe will remain firmly closed for the foreseeable future.

View further information here.

Contributed by: Richard Breen and Sinéad Kelly