European Developments Regarding Collective Redress – European Commission Rejects "US Style" Class Actions

In February, the European Commission issued a further consultation paper, "Towards a Coherent European Approach to Collective Redress," which seeks to identify common legal principles on collective redress which would guide any future EU initiatives in this area. The consultation appears to respond to criticisms that previous initiatives were inconsistent and were advanced on a piecemeal basis, with separate legislative proposals being progressed in the areas of competition law and consumer protection. The Commission is therefore consulting horizontally, across a broad range of industry sectors, with the aim of developing a coherent approach to legislation relating to collective redress. The consultation runs until 30 April 2011. While the principle aim of the consultation is to ensure that adequate mechanisms are in place so that citizens and businesses are able to seek redress on a collective basis, the consultation document acknowledges that improved mechanisms for collective redress could also assist consumers and businesses in initiating private actions against unlawful practices, thereby supporting regulatory agencies by indirectly policing breaches of EU law – whilst the role of private law actions in law enforcement is widely recognised in the US, it has not generally been acknowledged by the EU authorities as a factor influencing legislative initiatives. The consultation seeks views on whether any changes should be made to existing laws – whether new mechanisms of collective redress would add value, how they would work and whether they should be introduced generally or in specific sectors, such as competition law and consumer law and identifies certain general principles which could guide any future EU initiatives for collective redress. It is interesting to note that the European Commission is at pains to point out that any new laws would have to include safeguards to avoid the risk of "abusive litigation". It does not support the combination of factors present in so called "US style" class actions, including the availability of punitive damages, the absence of limitations regarding standing, the availability of contingency fees and the wide ranging discovery procedures for documentary evidence, which it considers potentially provide economic incentives to litigate unfounded claims. It seeks views on safeguards which could be introduced to prevent such "abusive litigation" including the introduction of the "loser pays" principle (which means that the losing party pays the court and lawyers fees of both parties) and restrictions on when proceedings can be commenced (for example, the need for Court approval prior to the commencement of proceedings). – Alison Brown

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