COLLECTIVE COMPENSATORY REDRESS IN MASS HARM
SITUATIONS CONCERNING INFRINGEMENTS OF EU CONSUMER
LAW
Master’s thesis by Eimantas Šimulis
COLLECTIVE COMPENSATORY REDRESS IN MASS HARM
SITUATIONS CONCERNING INFRINGEMENTS OF EU CONSUMER
LAW
Master’s thesis by Eimantas Šimulis
Student number:10609695
Thesis supervisor: prof. dr. M.B.M. Loos
July 2014
TABLE OF CONTENTS
Introduction
……….………...…….31. The European consumer redress framework
……….……...….71.1. Consumer ADR………8
1.2. Consumer collective redress………...……9
2. Obstacles to consumer access to justice: general analysis
...132.1. The nature of the obstacles to consumer access to justice...13
2.2. Main obstacles with regard to individual court actions and ADR procedures…...14
2.3. Threshold amounts for seeking compensatory redress………...……15
2.4. The added value of collective redress mechanisms for consumer access to justice……….……17
3. Obstacles to consumer access to collective redress in EU and deficiencies of
the European consumer redress framework
………..………...……...193.1. Specific obstacles to consumer access to collective redress in EU……….19
3.2. Deficiencies of the European consumer redress framework………...…21
4. Recommended measures at the European level
………...254.1. The compensation order procedure………...…...25
4.2. Collective ADR………..……28
4.3. Judicial collective redress mechanism………..………30
Conclusion
……….……….34Bibliography
………..…36Introduction
The European Union over the years has developed a vast body of robust consumer protection rules. These rules aim at ensuring consumers’ trust and participation in the internal market, which are necessary for the sustainable growth of the European economy.1 However, consumers’ trust may be undermined if rights granted to them by the European legislator are not effective in practice. To guarantee the effectiveness of consumer protection rules, both adequate public enforcement and well-designed redress mechanisms are necessary.
Indeed, public enforcement of EU consumer law cannot always ensure that European businesses comply with prescribed standards and respect consumer rights. In fact, a Eurobarometer survey conducted in 2010 has found that 21% of the interviewed consumers had encountered a problem during the past year with a good, a service, a retailer or a service provider for which, in their opinion, they had a legitimate cause for complaint.2 In this context, effective consumer access to justice is a crucial factor in maintaining their confidence, especially with regard to cross-border transactions.3
Moreover, the scale and geographical scope of economic activity by European businesses are becoming wider than ever. The digital revolution made it easier for sellers and service providers to reach consumers in different Member States. This development, however, has increased the risk that a single infringement of EU consumer protection rules may cause harm to multiple
1
According to the data presented by the Commission, 56% of EU gross domestic product is generated by consumer expenditure. Communication from the Commission to the European Parliament, the Council, the Economic and Social Committee of the Regions A European Consumer Agenda – Boosting
confidence and growth, COM(2012) 225, p.2.
2
Total consumer detriment caused by these problems amounted to 0.39% of the EU gross domestic product. See: Consumer empowerment survey. Special Eurobarometer No 342, 2011, Summary, p. 37, p. 39. Accessible at: http://ec.europa.eu/public_opinion/archives/ebs/ebs_342_sum_en.pdf [Accessed on 19 June 2014].
3
Consumers feel much less confident when purchasing from a seller located in another EU Member State, than with regard to domestic purchases (36% and 59% of the consumers respectively). See: Consumer attitudes towards cross-border trade and consumer protection. Flash Eurobarometer No 358, 2013, Summary, p. 7. Accessible at: http://ec.europa.eu/public_opinion/flash/fl_358_sum_en.pdf
[Accessed on 19 June 2014].
3
consumers (‘mass harm situations’), who may be located in several different EU Member States.4
The issue of adequate consumer access to justice may require separate treatment with regard to mass harm situations. Damage caused in these cases is often widely dispersed, meaning that while individual harm to a single consumer is relatively low, the aggregate amount of damage could be rather significant. The low value of an individual claim may often prevent consumer access to justice as costs of seeking redress could significantly outweigh the anticipated amount of compensation.5 On the other hand, the collective nature of the harm caused provides the possibility of lowering these costs by grouping individual claims in a single collective redress procedure.
The issue of consumer access to justice in mass harm situations has received great attention at both the national and the EU level. At the national level, this resulted in the introduction of various types of collective redress mechanisms in most EU Member States.6 These instruments were supposed to ensure satisfactory redress for groups of injured consumers; however they varied greatly both as to their design as well as their effectiveness.7 Although the utility of national collective redress schemes may often be questioned, the general inclination towards a collective approach in mass harm situations could be seen at the EU Member State level.
4
The study commissioned by the Commission identified 326 consumer collective redress cases brought before the courts of 10 EU Member States in the period of 1998 – 2008 and additional 144 mass claims from 22 EU Member States in regard with which consumers had not obtained satisfactory redress. See: Study regarding the problems faced by consumers in obtaining redress for infringements of consumer protection legislation, and the economic consequences of such problems, Part I: Main Report. Civic Consulting of the Consumer Policy Evaluation Consortium, 2008, p. 19. Accessible at:
http://ec.europa.eu/consumers/redress_cons/finalreport-problemstudypart1-final.pdf [Accessed on 20 June 2014].
5
Ibid, p.4.
6
The research conducted in 2011 by the European Parliament has found that 15 Member States had in place collective redress mechanisms applicable to mass harm situations which allowed for compensatory relief. See: Overview of existing collective redress schemes in EU member states. European Parliament Directorate General for Internal Policies, 2011. Accessible at:
http://www.europarl.europa.eu/document/activities/cont/201107/20110715ATT24242/20110715ATT242 42EN.pdf [Accessed on 20 June 2014].
7
Evaluation of the effectiveness and efficiency of collective redress mechanisms in the European Union. Civic Consulting and Oxford economics, 2008, p. 6-9. Accessible at:
http://ec.europa.eu/consumers/redress_cons/finalreportevaluationstudypart1-final2008-11-26.pdf
[Accessed on 20 June 2014].
4
At the European level the debate on how to address the issue of consumer access to justice in mass harm situations has a long and complicated history. As early as 1985 the Commission looked for the first time into possible ways of defending collective consumer interests. Since then numerous communications, opinions and other legal documents on this topic were issued and several comprehensive studies were conducted.8 The efforts of the Commission resulted in the adoption in June of 2013 of the Recommendation on common principles for collective redress
mechanisms encouraging Member States to have national generic collective redress mechanisms
by 26 July 2015.9
This paper focuses on the issue of collective compensatory relief in mass harm situations concerning infringements of EU consumer law. The main question it seeks to answer is how the European framework could be improved to facilitate the obtainment of compensation through collective redress procedures. The paper identifies the main problems which preclude consumers from securing compensation in mass harm situations and envisages the possible ways of eliminating them. In this regard, the adoption of EU measures is also recommended and their main features are discussed in more detail.
This paper is divided into four main chapters and several subsections. The next chapter briefly reviews current EU legislation in the field of consumer redress and reflects on the history of its evolution. In the second chapter a general analysis of obstacles to consumer access to justice is provided, their effects are analysed and the possible added value of collective redress mechanisms is investigated. The third chapter identifies specific obstacles to consumer access to collective redress. In the light of the identified problems the deficiencies of European consumer redress framework are also discussed in this chapter. The last chapter envisages possible measures at the EU level and elaborates on their main features.
8
The history of EU involvement into the issue of consumer access to justice in mass harm situations was reviewed at length in the Opinion of the Economic and Social Committee on Defining the collective actions system and its role in the context of Community consumer law, OJ C 162, 25.6.2008, p. 1, paragraphs 3.7-3.22.
9
Commission recommendation of 11 June 2013 on common principles for injunctive and compensatory collective redress mechanisms in the Member States concerning violations of rights granted under Union Law, COM (2013) 3593/3.
5
1. The European consumer redress framework
The EU has a well-developed corpus of substantive consumer protection law. The enforcement of EU consumer law, however, has for long received less attention on the European level. In the beginning of the 2000’s the Commission has acknowledged that the situation is unsatisfactory and started exploring possibilities for a legislative intervention.10 In 2004 the Regulation on
consumer protection cooperation11 was adopted which strengthened cooperation between national consumer protection authorities. In the later years focus switched to the improvement of private enforcement of EU consumer law.12 The efforts of the Commission culminated in 2013 with the adoption of two legislative pieces on consumer alternative dispute resolution (‘ADR’) – the Directive on consumer ADR13 and the Regulation on consumer ODR14. In the same year a long awaited measure on collective redress has been passed, which however took the form of a recommendation and was based on a horizontal approach.Thefollowing subsections will review in more detail the abovementioned EU instruments that form the main part of the European framework for consumer compensatory redress.
1.1 Consumer ADR
As was mentioned above, in the field of consumer ADR two important European acts were passed in 2013: the Directive on consumer ADR and the Regulation on consumer ODR.
10
Communication from the Commission to the European Parliament, the Council, the Economic and Social Committee and the Committee of the Regions Consumer Policy Strategy 2002-2006, COM (2002) 208, p. 20, p. 25.
11
Regulation (EC) No 2006/2004 of the European Parliament and of the Council of 27 October 2014 on cooperation between national authorities responsible for the enforcement of consumer protection laws, OJ L 364, 9.12.2004, p. 1.
12
Communication from the Commission to the Council, the European Parliament and the European Economic and Social Committee ‘EU Consumer Policy strategy 2007-2013’ Empowering consumers, enhancing their welfare, effectively protecting them, COM(2007) 99, p. 10-11.
13
Directive 2013/11/EU of the European Parliament and of the Council of 21May 2013 on alternative dispute resolution for consumer disputes and amending Regulation (EC) No 2006/2004 and Directive 2009/22/EC, OJ L, 18.6.2013, 165 p.63.
14
Regulation (EU) No 524/2013 of the European Parliament and of the Council of 21 May 2013 on online dispute resolution for consumer disputes and amending regulation (EC) No 2006/2004 and Directive 2009/22/EC, OJ L, 18.6.2013, 165, p. 1.
6
The major rationale behind the adoption of the Directive on consumer ADR was to improve consumer access to justice by expanding the coverage of consumer ADR schemes.15 The problem of gaps existing in the coverage of consumer ADR both at geographical and sectorial levels has been recognised by several studies.16 In response to this, the Directive on consumer ADR requires Member States to ensure that by 9 July 2015 consumers are able to bring complaints against traders established in their territories before a consumer ADR scheme which complies with a set of quality requirements.17 These mandatory requirements should ensure that consumer complaints are resolved in a fast and effective manner by impartial and independent consumer ADR bodies, which consist of persons having the necessary expertise.
The harmonization by the Directive on consumer ADR of requirements for consumer ADR schemes is, however, still very limited. Most of procedural and practical aspects of the functioning of ADR mechanisms are left to regulate at the national level. Therefore the considerable variation in the ways that European consumer ADR schemes operate will be preserved. In particular, the Directive on consumer ADR leaves for the Member States to decide whether the national consumer ADR mechanisms should produce binding or non-binding decisions or whether they should operate only as mediation schemes. The issue of adherence of businesses to the consumer ADR schemes is also not addressed by the directive. Furthermore, the Directive on consumer ADR does not require Member States to have any type of collective consumer ADR procedure.
The Directive on consumer ADR, however, addresses the problem of the lack of awareness among consumers of available consumer ADR mechanisms. Firstly, the directive imposes certain transparency requirements on existing ADR schemes. These include the requirement to have an up-to-date website18 where information on how to start the process and what the admissibility criteria are, information on applicable procedural rules and data on the historic activity of a particular consumer ADR scheme should be presented in a clear and comprehensible manner19.
15
5 and 6 indents of the preamble to the Directive on consumer ADR.
16
See, for example: Study on the use of Alternative dispute resolution in the European Union. Civic Consulting of the Consumer Policy Evaluation Consortium, Final Report, 2009, p. 9. Accessible at:
http://ec.europa.eu/consumers/redress_cons/adr_study.pdf [Accessed on 28 June 2014].
17
Article 5 (1) and Article 25 (1) of the Directive on consumer ADR.
18
Article 5 (2) (a) of the Directive on consumer ADR.
19
Article 7 of the Directive on consumer ADR.
7
Furthermore, the Directive on consumer ADR provides for the dissemination of information on existing ADR mechanisms. Every trader has to inform consumers on its website and in the general terms and conditions of sales and services contracts about the consumer ADR scheme by which that trader is covered.20 Although the directive also obliges the Commission and Member States to take all the appropriate measures to raise consumer awareness, it does not envisage any specific actions in this regard.21
1.2 Consumer collective redress
On 11 June 2013 the Commission has finally issued a measure on collective redress - the Recommendation on common principles for collective redress mechanisms. This document was part of a ‘package’ which also included the communication22, in which the Commission explained its thinking on the issues dealt with in the regulation, and a proposal for a directive on competition damages23. As C. Hodges has put it: that the proposals take this form is entirely due to political—rather than scientific—considerations.24
The issue of collective redress has been hotly debated for some time at the European level both in the context of consumer and competition law. In the EU Consumer Policy Strategy 2007-2013 the Commission has announced that it will consider action on consumer collective redress.25 Following this, DG SANCO has identified a set of benchmarks for effective and efficient collective redress mechanisms.26 The consultation on draft benchmarks revealed the strongly differing positions of consumer representatives and businesses. Consumer organisations were in general supportive of the idea of a European collective redress mechanism and emphasised the
20
Article 13 of the Directive on consumer ADR.
21
Article 15 of the Directive on consumer ADR.
22
Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions Towards a European Horizontal Framework for Collective Redress, COM (2013) 401.
23
Proposal for a directive of the European Parliament and of the Council on certain rules governing actions for damages under national law for infringements of the competition law provisions of the Member States and of the European Union, COM(2013) 404.
24
Hodges, Christopher. ‘Collective redress: A Breakthrough or a Damp Sqibb?’, Journal of Consumer Policy, 2014, 37:67-89, p. 68.
25
EU Consumer Policy Strategy 2007-2013 (supra note 12), p. 11.
26
The list of benchmarks that should be respected by effective and efficient collective redress systems. Accessible at:
http://ec.europa.eu/consumers/archive/redress_cons/collective_redress_en.htm#Benchmarks [Accessed on 1 July 2014].
8
importance of making it easily accessible.27 Industry representatives, on the other hand, expressed strong doubts on the need of an EU measure and urged the Commission to ensure that any possible European mechanism includes strong safeguards against abusive litigation.28 The Green paper on consumer collective redress which was published in 2008 considered four different options from no EU action at all to the introduction of a judicial collective redress procedure.29 In the light of responses to the Green paper the options were further refined in the 2009 follow-up consultation paper.30 In this paper the Commission concluded that the problem of inadequate consumer access to justice can be tackled by three main elements: a strong collective consumer ADR system together with an effective collective judicial redress mechanism and the strengthening of national enforcement authorities.31 The Commission introduced 5 options which combined these elements in various ways. A binding or non-binding EU instrument was envisaged which would oblige or encourage Member States to ensure the availability of collective ADR.32 The designing together with stakeholders of a model collective ADR scheme was also considered.33 As regards collective judicial redress, the Commission contemplated a unified EU-wide test case procedure.34 Finally, the consultation paper envisaged strengthening national consumer protection authorities by equipping them with additional powers under the Regulation on consumer protection cooperation.35 The skimming-off power would allow national authorities in cross-border mass harm situations with very low value individual claims to order the violator to pay to the state budget the sum equal to the profit made from illegal activity. The compensation order power would permit obliging the infringer to compensate to consumers the damage caused.
27
Feedback statement on draft consumer collective redress benchmark consultation, p.2. Accessible at:
http://ec.europa.eu/consumers/archive/redress_cons/docs/feedback_benchmark_en.pdf [Accessed on 1 July 2014].
28
Ibid.
29
Green Paper on Consumer Collective Redress, COM(2008) 794.
30
The 2009 follow-up consultation paper on consumer collective redress. Accessible at:
http://ec.europa.eu/consumers/archive/redress_cons/docs/consultation_paper2009.pdf [Accessed on 1 July 2014]. 31 Ibid., p. 15. 32 Ibid., p.16-18. 33 Ibid., p. 15. 34 Ibid., p. 18-20. 35 Ibid., p. 17. 9
In 2009 a major change in the Commission’s approach towards collective redress has taken place. In this year the proposal for a directive on collective redress for competition damages has been dropped because of the strong opposition from some of the Member States.36 One of the arguments raised was that the Commission’s different initiatives on collective redress were inconsistent with each other (namely in the fields of consumer law and competition).37 This pressure resulted in the Commission launching of a public consultation in 2011 on a coherent European approach towards collective redress. In the working document the Commission advocated the horizontal approach and strongly emphasised the need to respect the different legal traditions of Member States.38 It has become clear that a binding legal instrument on collective redress was hardly possible in the near future. The European Parliament has also expressed its support to the Commission’s approach stating that uncoordinated sectoral initiatives could cause fragmentation of national procedural laws which would result in the deterioration of access to justice in the EU.39
The Recommendation on common principles for collective redress mechanisms encourages Member States to have national collective injunctive and compensatory redress mechanisms for infringements of rights granted under EU law by 26 July 2015.40 The recommendation contains a set of common principles with which national collective redress schemes should comply and which should be applied horizontally in all the relevant areas of law.41 The recommendation also encourages Member States to ensure that appropriate means of collective ADR are available to parties before and throughout litigation, although the specificities of procedures are not addressed.42
36
Hodges 2014 (supra note 24), p. 72.
37
Ibid.
38
Commission staff working document. Public consultation: Towards a Coherent European Approach to Collective Redress, SEC (2011) 173, p. 4.
39
European Parliament resolution of 2 February 2012 on Towards a Coherent European Approach to Collective Redress, (2011/2089(INI)), paragraph 15.
40
Paragraph 1 and paragraph 38 of the Recommendation on common principles for collective redress mechanisms.
41
7th indent of the preamble to the Recommendation on common principles for collective redress mechanisms.
42 Paragraphs 25-28 of the Recommendation on common principles for collective redress mechanisms.
10
2. Obstacles to consumer access to justice: general analysis
2.1 The nature of the obstacles to consumer access to justice
Not all consumers who suffer damage as a consequence of an infringement of EU consumer protection rules seek compensation from the violator.43 Furthermore, even those consumers who start the process are not always able to obtain satisfactory redress at the end.44 This situation may be caused by various factors, emotional and rational, real and perceived. In turn, emotional factors may be individual, such as a consumer lack of confidence, or pertain to a certain cultural tradition.45
Rational obstacles may relate to the costs (monetary and non-monetary, e.g. time) of pursuing compensation, the accessibility of a redress mechanism (e.g. requirements on legal standing, complex entry procedures), lack of awareness among consumers on the existence of redress procedures or other factors which may make certain scheme incapable of delivering compensation.
Some of the barriers consumers encounter are of a more general nature and may be relevant for most cases, for example a consumer’s lack of knowledge, but the majority of them are inherent only to specific types of redress mechanisms.46 The differing designs of redress procedures may not only facilitate obtaining compensation, but may also create additional, peculiar obstacles.
43
Eurobarometer survey has showed that 23% of consumers who had experienced a problem with a purchase did not take any action at all. See: Consumer empowerment survey (supra note 2), p. 40.
44
This could be the case, for example, when businesses do not comply with non-binding decisions of consumer ADR bodies or when agreement between consumer and business is not reached in the mediation procedure. See: The Problems study (supra note 4), p. 64.
45
The influence of the subjective/emotional factors on the likelihood of taking action by harmed consumers was revealed in a qualitative study by Eurobarometer. This study, for example, has showed that ‘Dutch and Belgian consumers (from consensus-oriented cultures) felt that it was “socially unacceptable” in some cases to complain and Czech consumers felt “embarrassed or guilty” when complaining’. See: Consumer redress in the European Union: consumer experiences, perceptions and choices, aggregated report, 2009, p. 20. Accessible at:
http://ec.europa.eu/consumers/redress_cons/docs/cons_redress_EU_qual_study_report_en.pdf [Accessed on 20 June 2014]
46
The Problems study (supra note 4), p. 8.
11
Moreover, even in the cases when the same impediment is relevant for several mechanisms, its importance may vary significantly for each procedure.47
Some of the obstacles to consumer access to justice relate not to a specific redress procedure but depend on the cross-border nature of the case. 48 Moreover, the cross-border element can further reinforce the effect of certain impediments. These obstacles could be of an informational nature (e.g. lack of information on foreign law), flow from the discrepancies of national laws (e.g. denied legal standing), or could be related to additional costs (travel and representation expenses, translation costs).49
2.2 Main obstacles with regard to individual court actions and ADR procedures
The main obstacles which may preclude European consumer from pursuing compensation through a court action are rather well known and they have been reported by several studies. The
Eurobarometer qualitative study has showed that court actions are seen by consumers as costly
and time-consuming.50 Furthermore, court proceedings are perceived to be the most complex of all mechanisms. These consumer views determine the willingness of consumers to use judicial procedures only in the most serious cases, i.e. cases involving a high amount of losses.51 High litigation costs, the length and complexity of court proceedings have been found to be major obstacles also by the Problems study.52
As regards the barriers which European consumers encounter in relation with ADR procedures, several extensive studies have also been conducted. The ADR study has found that a lack of awareness of available ADR schemes is the most significant impediment. The other important obstacle is non-adherence by traders to voluntary procedures.53 Similar findings have also been presented by the previous study conducted for the Commission by Leuven University.54
47 Ibid., p. 76. 48 Ibid, p. 43. 49 Ibid. 50
The Eurobarometer qualitative study (supra note 45), p. 11.
51
Ibid.
52
The Problems study (supra note 4), p. 42-43.
53
The ADR study (supra note 16), p. 112-115.
54
An analysis and evaluation of alternative means of consumer redress other than redress through ordinary judicial proceedings, final report. The Study Centre for Consumer Law – Centre for European Economic Law, Katholieke Universiteit Leuven, Belgium, 2007, p. 10; p. 143-147. Accessible at:
12
2.3 Threshold amounts for seeking compensatory redress
The consumer’s initial decision of whether to pursue compensation or not is based on a consideration of different factors. These include the possible costs of seeking redress (financial, time and psychological) and anticipated benefit (amount of compensation). If the comparison of these factors leads to the conclusion that costs outweigh the value of the compensation the rational consumer will refrain from seeking it. Therefore the likelihood of consumer pursuing compensation depends both on the amount of damage inflicted and costs of available redress mechanisms.
A comparison between costs of seeking redress and the anticipated benefit leads to the formation of threshold amounts, marking the size of the damage which has to be inflicted in order for a consumer to be willing to seek compensation. The higher the costs the more significant damage will have to be caused for the consumer to be worth initiating the process. Because of these differing costs, different tipping points exist for each redress mechanism. In general, traditional court actions are perceived by consumers to be the most expensive and complex of all the mechanisms and therefore they are more used in cases where the damage caused is considered to be significant. 55 Whereas ADR schemes tend to be relatively cheap for consumers and therefore they can be employed in cases where the amount of losses is lower.56
It has to be noted, however, that exact threshold amounts above which consumers are willing to seek compensation depend not only on the costs of a specific redress mechanism, but also on other factors, such as personal circumstances and the nature of the item or service. They also differ as to the Member State reflecting the differences in the average income.57 Threshold amounts tend to be lower in new Member States and higher in Western European and Scandinavian countries.
Because of the fact that various circumstances influence the exact levels of threshold amounts, it is very difficult to make generalizations as to the precise values. However, several studies
http://ec.europa.eu/consumers/redress/reports_studies/comparative_report_en.pdf [Accessed on 30 June 2014].
55
See, for example: Consumer empowerment survey (supra note 2), p. 45-46.
56
Ibid.
57
The Eurobarometer qualitative study (supra note 45), p. 36.
13
provide us at least with some guidance. The Eurobarometer qualitative study shows that the tipping point above which consumers tend to bring their complaints further than a supplier is EUR 100 for consumers from Western European and Scandinavian countries and around EUR 50 for consumers coming from new Member States.58 This study, however, does not distinguish between different redress mechanisms and gives only the lowest threshold below which consumers are not likely to seek compensation at all. Another study by Eurobarometer has presented separate thresholds for court actions and consumer ADR procedures. More than half of the interviewed consumers felt that they would be willing to sue the supplier if the damage suffered would be at least somewhere between EUR 101 and EUR 2500. For ADR procedures the tipping point was lower: 38% of the consumers indicated the amount to be EUR 200 or lower and for further 25% it was in the range of EUR 200 to EUR 1000.59 The Problems study has also tried to identify specific threshold amounts. For individual court actions the tipping point was found to vary considerably depending on the Member State and the complexity of the case and could be somewhere between several hundred to EUR 10 000.60 Threshold amounts for individual consumer ADR procedures, according to the Problems study, are much lower and should be expected to be in the range from EUR 50 to EUR 200.61
2.4 The added value of collective redress mechanisms for consumer access to justice
The effective collective redress mechanism besides achieving strong deterrence effect and adding to a procedural economy may significantly increase the possibility for consumers to obtain compensation. This is true for both collective judicial and out-of-court procedures.
As was mentioned above, high litigation costs can effectively preclude consumers from seeking redress through courts. Grouping of individual claims in a single collective procedure, however, can lower these costs significantly. The Evaluation study has showed that potential saving on total litigation costs in judicial collective redress procedures as compared to individual court
58
Ibid.
59
Consumer empowerment survey (supra note 2), p. 45-46.
60
The Problems study (supra note 4), p. 81.
61
Ibid.
14
actions can range from 46% up to 99%.62 The effect on an individual consumer, however, will depend on the type of mechanism. In the case of representative action the litigation costs may be borne by the intermediary and the individual consumers will only need to incur limited expenses related to the gathering of evidence and signing up to the case. In a group action, where a claimant party consists of the harmed consumers themselves, litigation costs could be shared between all the group members.
Besides possible financial benefit collective redress mechanisms may also save consumers a lot of time in comparison with individual procedures. This is because the individual consumer may need to put less effort in preparing the claim and communicating with the lawyer. This is especially true for representative claims where the intermediary does much of the work. This effect may be relevant both to judicial and out-of-court collective procedures and may be especially important in cases where individual damage is low and consumers are not willing to invest their time in pursuing compensation.
Collective redress procedures may also have a strong positive psychological effect on consumers. According to the Eurobarometer survey 76% of consumers would be more willing to defend their rights in courts if they could join with others.63 The Problems study has also found that taking on a case with others who had a similar grievance would make individuals feel more
confident/empowered, more motivated, and would be a source of support.64 These possible psychological effects could be relevant to both collective judicial and ADR procedures.
The collective redress mechanisms could also have other positive impacts on the possibility of the consumer obtaining compensation. For example, it can be easier in a collective procedure to prove the existence of illegal behaviour, damage and a causal link.65 This is especially important
62
The Evaluation study (supra note 7), p. 63-64.
63
Consumer protection in the internal market, Special Eurobarometer No 298, 2008, Summary, p. 14. Accessible at: http://ec.europa.eu/public_opinion/archives/ebs/ebs_298_sum_en.pdf [Accessed on 3 July 2014].
64
Study regarding the problems faced by consumers in obtaining redress for infringements of consumer protection legislation, and the economic consequences of such problems. Part II: Consumer attitudes towards available means of redress, 2008, p. 9. Accessible at:
http://ec.europa.eu/consumers/archive/redress_cons/docs/finalreport-focusgroup2-final.pdf [Accessed on 24 June 2014].
65
Benöhr, Iris. Consumer dispute resolution after the Lisbon treaty - collective actions and alternative procedures, Journal of Consumer Policy, 2013, 36:87–110, p. 11.
15
in complex cases where the necessary research can be extremely costly which could make individual litigation impossible.
Naturally, the lower costs as well as other positive effects reflect in the lower threshold amounts for collective redress mechanisms as compared to individual procedures. This has been proved by the Problems study, which claims that lower tipping points can be observed for both collective judicial and even ADR procedures.66
Even though collective redress mechanisms can facilitate consumer access to justice this is true only with regard to well-designed procedures. Various deficiencies may render mechanisms unviable. To develop an effective and efficient collective redress procedure various issues have to be solved, such as how collective actions will be funded, how abusive litigation will be prevented or how consumers will be informed about pending cases.
3.
Obstacles to consumer access to collective redress in EU and deficiencies
of the European consumer redress framework
3.1. Specific obstacles to consumer access to collective redress in EU
As was mentioned above, 15 Member States had judicial collective redress mechanisms by 2011.67 The unavailability of collective procedures in the rest of the EU therefore precludes consumer access to collective redress. The Evaluation study has showed that existing mechanisms varied greatly as to their design and their effectiveness. While some of the mechanisms managed to deliver compensation in cases where consumers would not had sought redress individually, others were of little benefit to consumers in these cases.68 In general, the Evaluation study revealed that national mechanisms were used quite rarely, with the exception of French representative action.69
66
The Problems study (supra note 4), p. 87.
67
Overview of existing collective redress schemes in EU member states (supra note 6).
68
The Evaluation study (supra note 7), p. 51-53.
69
Ibid., p. 40-41.
16
The Evaluation study identified a lack of financing as one of the most important reasons why national judicial collective redress mechanisms were so rarely employed.70 In the case of representative actions, the limited financial resources of consumer organisations and consumer protection authorities allowed them to bring only a limited number of cases each year, as case preparation, management and litigation costs can be extremely high. The study has also showed that private third party financing was very rare in Europe (the only exception being Austria).71 What can be clearly seen is that there is a general lack of appropriate financing arrangements which makes collective redress mechanisms unviable.72
The Evaluation study has also showed that national judicial collective redress mechanisms were not useful for mass harm situations where individual claims were of very low and low value, as only a small portion of harmed consumers had joined these cases.73 It seems that in these situations even the costs for gathering evidence and signing up to the case are seen as too high in comparison with the value of the damage inflicted to be worth the effort.
The most comprehensive research on the obstacles European consumers face when seeking redress in mass harm situations has been done by the Problems study. This study has found a total of 25 different impediments which may potentially prevent harmed consumers from seeking or obtaining compensation.74 These obstacles, however, vary greatly as to their relative importance. Among the obstacles which are relevant both to collective judicial and ADR procedures the most important was found to be a lack of awareness among consumers of available redress mechanisms.75 This could be caused by the fact that most of the collective procedures in Europe have been introduced only recently.76 Therefore it could be expected that this problem will diminish over time. As regards collective judicial mechanisms, high litigation
70
Ibid., p. 68-70.
71
Ibid., p. 68.
72
Hess, Yulia. ‘Proposed Collective Redress in Europe in the Perspective of Deterrence of Corporate Wrongdoing’. European Company Law 10, no. 3 (2013): 123–128, p. 127.
73
The Evaluation study (supra note 7), p. 98.
74
The Problems study (supra note 4), p. 8.
75
Ibid., p. 77; The same findings has been presented also by the Eurobarometer qualitative study. See: The Eurobarometer qualitative study (supra note 45), p. 9-10.
76
The Evaluation study (supra note 7), p. 17-19.
17
costs, formal requirements of existing mechanisms, length of proceedings and lack of available financing for collective actions have been identified as the most serious barriers.77
It is hard to speak about specific barriers relevant only to collective ADR schemes, as by now there is only very limited experience in this field in Europe. Only a few EU Member States have introduced collective out-of-court dispute resolution schemes.78 The unavailability of collective ADR procedures in most EU Member States therefore has to be seen as a major obstacle to consumer access to justice in mass harm situations. For the available collective out-of-court dispute resolution schemes, the problem of non-adherence of businesses to ADR schemes should be expected to be as relevant as to individual procedures.
Additional specific obstacles to consumer access to collective redress exist in cross-border cases. The Problems study has identified 6 such obstacles. These include a lack of knowledge of legislation and available redress mechanisms in other Member States, conflict among national legislations, no information about collective claims brought in other Member States, difficulty to identify a defendant in another Member State (this obstacle is however relevant mostly to scam cases), no standing of bodies to bring claim in another Member State or inability to join claims brought in another Member State, language barriers, travel expenses, and difficulties in obtaining adequate representation.79
3.2.
Deficiencies of the European consumer redress framework
The problems which were discussed in the previous subsection are not successfully tackled at the EU level. Although the Recommendation on common principles for collective redress mechanisms encourages Member States to have both collective judicial and ADR procedures, it is not a binding instrument. Therefore it remains to be seen what effect on the availability of collective redress throughout the EU it will have. However, it is really doubtful that by 26 July 2015 collective judicial and ADR schemes will be introduced in all Member States, as national legislators will certainly face strong opposition by the industry. Thus the non-binding nature of the recommendation is its major defect.
77
The Problems study (supra note 4), p. 9, p. 77.
78
According to the ADR study, collective ADR schemes are available in Sweden, Finland and Spain. See: The ADR study (supra note 16), p. 50-51.
79
The Problems study (supra note 4), p. 65-69.
18
The recommendation stipulates a set of common principles for collective redress mechanisms. What can be immediately seen is that the recommendation does not provide a standard design for a collective procedure.80 Most of the details of a mechanism are left for the national law. The recommendation does not even propose a particular type of collective procedure and Member States are free to choose between group, representative action or test case procedure and their various forms. Furthermore, it is clear that most of the common principles deal with the prevention of unmeritorious litigation. Firstly, it is done by introducing a ‘gatekeeper’, namely by stipulating minimum requirements for intermediaries to be granted legal standing in collective actions81 and providing for an admissibility check by the courts at the earliest possible stage of litigation82. Secondly, unmeritorious claims are discouraged through financial means, which include the ‘loser-pays’ principle83, certain rules on financing of collective actions84, the prohibition of contingency fees85 and punitive damages86. Finally, the recommendation adheres to the formation of the claimant party by the ‘opt-in’ principle.87
It must be noted, that almost all of the stipulated safeguards provide for exemptions, which is probably the consequence of a strongly accentuated need to respect different national legal orders. Therefore, the practical result may be that national collective redress mechanisms will differ significantly, especially taking into account that widely diverging collective procedures already exist in more than half of the Member States.88 On the other hand, if all the safeguards are implemented there is a danger that such a collective redress mechanism would be hardly accessible and therefore rarely used.89
Contrastingly, only a few provisions in the recommendation deal with the issue of making national collective redress mechanisms more effective. Firstly, two provisions focus on informational problems. Member States are encouraged to ensure that a representative authority
80
Hodges 2014 (supra note 24), p. 67.
81
Paragraphs 4-7 of the Recommendation on common principles for collective redress mechanisms.
82
Paragraphs 8-9 of the Recommendation on common principles for collective redress mechanisms.
83
Paragraph 13 of the Recommendation on common principles for collective redress mechanisms.
84
Paragraphs 14-16 of the Recommendation on common principles for collective redress mechanisms.
85
Paragraphs 29-30 of the Recommendation on common principles for collective redress mechanisms.
86
Paragraph 31 of the Recommendation on common principles for collective redress mechanisms.
87
Paragraphs 21-24 of the Recommendation on common principles for collective redress mechanisms.
88
Stadler, Astrid. ‘The Commission’s Recommendation on common principles of collective redress and private international law issues’, NIPR 2013 (4), p. 484.
89
Hodges 2014 (supra note 24), p. 83-84.
19
or other claimant party has the possibility to effectively disseminate information on a claimed violation of rights granted under EU law and on a possible collective action.90 Furthermore, the recommendation invites to establish national registries for collective redress cases to raise awareness of potential claimants.91 Secondly, the recommendation seeks to facilitate cross-border cases. In this regard, Member States are asked to ensure that representative authorities and groups of claimants from other Member States have a legal standing in cross-border cases.92
Besides the three abovementioned provisions, the recommendation does not address the obstacles which European consumers encounter in relation with collective redress. There are no measures envisaged for ensuring the sufficient financing of collective actions93 nor are there any provisions that deal with high litigation costs, length and formality of proceedings or apathy of consumers in very low value mass claims. The two provisions dealing with informational problems will be of minor practical importance, as the first one, guaranteeing possibilities for dissemination of information, is of a very general nature and the second, on the establishing of national registries, is insufficient for solving these problems in essence.
The recommendation will also be of little help in facilitating cross-border collective cases. Although it may solve the problem of denied legal standing for a claimant from another Member State, other serious obstacles will remain.These firstly include the issues of international private law. Existing EU legislation on competent courts and applicable law in consumer cases is not designed for collective redress and may pose certain challenges for courts and parties.94 As regards rules on jurisdiction, according to the CJEU case law, the protective provisions of the Brussels I regulation95 do not apply to cases where representative action is brought by an intermediary.96 The Court explained that in these cases general rules on jurisdiction apply, which means that the court of the Member State where the trader or service provider is established will
90
Paragraphs 10-12 of the Recommendation on common principles for collective redress mechanisms.
91
Paragraphs 35-37 of the Recommendation on common principles for collective redress mechanisms.
92
Paragraphs 17-18 of the Recommendation on common principles for collective redress mechanisms.
93
Benöhr, Iris. ‘Collective Redress in the Field of European Consumer Law’, Legal issues of economic
integration 41, no.3 (2014):243-256, p. 254.
94
Stadler 2013 (supra note 88), p. 485. 95
Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, OJ L 351, 20.12.2012, p.1.
96
Case C-167/00 Verein für Konsumenteninformation [2002] ECR I-8126.
20
be competent to hear the case.97 There are also complex issues with regard to applicable law in collective consumer cases. For example, under the Rome I regulation the court in collective redress cases where consumers come from different Member States may have to apply several different national laws.98 Furthermore, the fact that the recommendation leaves for the Member States to decide on most of the aspects of the collective redress procedure adds to the difficulties which arise from differing national laws, namely a lack of knowledge of foreign law and consequent additional expenses on investigation.99
In general, the consequence of the recommendation will be that existing differences between national collective redress mechanisms will probably remain and newly introduced collective procedures will only add to this mosaic.100 This means that the results of national collective redress mechanisms will depend exclusively on the national conditions and will continue to vary significantly as to the Member State, which fact was already acknowledged by the Evaluation study. Consequently European consumers will enjoy different levels of protection depending in which country they reside. This situation points to the need for further action at the EU level.
97
Case C-167/00 Verein für Konsumenteninformation [2002] ECR I-8126, paragraphs 34-40.
98
Article 6 of the Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations, OJ L 177, 4.7.2008, p. 6.
99
Benöhr 2014 (supra note 93), p. 246-247. 100
For example, see: Wisking, Stephen; Dieztel, Kim; Herron, Molly. ‘European Commission finally publishes measures to facilitate competition law private actions in the European Union’, European Competition Law Review, 2014, 35(4), 185-193, p. 191; Benöhr 2014 (supra note 93), p. 252.
21
4. Recommended measures at the European level
As has been already shown above, the possibility for consumers to obtain compensation in mass harm situations heavily depends on the value of an individual claim. The size of the damage inflicted to an individual consumer determines the incentives he has to seek compensation and the influence which the specific obstacles may have on his decision to start the procedure or join a case. As every collective redress mechanism has its threshold amount, the value of the claim will dictate the most suitable procedure. Moreover, the size of the damage inflicted to an individual consumer may often be linked to the degree of complexity of the case and therefore can be an indicator of the most appropriate redress mechanism. All this leads to the conclusion that an optimal framework for collective consumer redress in the EU should be built upon separate solutions adapted to the specific levels of individual damage in mass harm situations.101
It must be noted that this paper does not deal with the questions related to the competence of the EU to legislate in the field of collective consumer redress, as this would require separate extensive research, especially taking into account that widely differing opinions on this topic exist.102 Therefore the issue of a possible legal basis for below proposed measures at the EU level is not addressed.
4.1 The compensation order procedure
As was mentioned, for mass claims with very low value individual damage the biggest problem is a lack of motivation by consumers. In these situations consumers are usually unwilling to pursue compensation even if that would not include any monetary costs for them. This is one of the reasons why in these cases national judicial collective redress mechanisms were not useful. As has been mentioned, threshold amounts exist even for redress mechanisms which are free of charge and they are in the range from €50 to €100. In these cases the costs of seeking
101
The similar view is expressed in Cupa, Basil. ‘Scattered Damages: A Comparative Law Study About the Enforcement Deficit of Low-Value Damages and the Class Action Approach’, European Review of Private Law, 2-2012, [507-540].
102
See, for example: Purnhagen, Kai. ‘United We Stand, Divided We Fall? Collective Redress in the EU from the Perspective of Insurance Law’, European Review of Private Law 2-2013, [479-506], p. 490-496; Cupa 2012 (supra note 101), p. 526-527; Dawson, Mark; Muir, Elise. ‘One for All and All for One? The Collective Enforcement of EU Law’, Legal Issues of Economic Integration 41, no.3 (2014): 215-224, p. 222.
22
compensation consist of time spent on submitting the claim and dealing with any other formalities. In the light of what was mentioned above, an effective redress procedure for collective cases with very low individual damage firstly should be free of charge for consumers and swift, the competence to initiate it should pertain to the intermediary, and there should be as few formalities consumers have to deal with as possible.
A possible solution at the European level for mass claims with very low value individual damage would be the introduction of a compensation order procedure.103 This was one of the options envisaged by the Commission in the Green paper on consumer collective redress which was later abandoned.104 Under this procedure a national consumer protection authority, after it has found an infringement of EU consumer rights, would have the power to order the payment of damages to consumers. This procedure should be possible to apply where damage to individual consumer is below a certain threshold, possibly not exceeding €100 (i.e. the same as the observed threshold amount for using any redress mechanism). This power could be implemented directly or through the court. This possible European instrument should set the prescription period for individual consumers to submit their requests after the decision in the procedure has been adopted. The requests could be submitted either directly to the trader or to the authority. In any event distribution of damages should have to be overseen by a consumer protection authority. The trader could be also required to inform injured consumers about the decision (if they are known) and dissuasive fines could be set for non-compliance with this obligation. The compensation order procedure should apply both to cross-border and domestic cases as the rationale behind the introduction of such a procedure is relevant to all the collective cases with low value individual claims irrespectively of whether injured consumers come from the same or from another Member State than the trader.
The European instrument establishing the compensation order procedure should be of a binding nature. Otherwise, it would be likely that the procedure is introduced only in some Member States. This would lead to further disparities between the levels of protection of consumers
103
The view that mass harm situations with trifle individual damage should be subjected to regulatory schemes has been expressed by several authors. See, for example: Hodges, Christopher. ‘Modes of Redress for Consumers: ADR and Regulation’, Legal Research Paper Series, University of Oxford, paper No 48, 2012. The paper is accessible at:
http://ssrn.com/abstract=2126485 [Accessed on 16 July 2014]; Cupa 2012 (supra note 101), p. 538.
104
Green Paper on Consumer Collective Redress (supra note 29), p. 10.
23
throughout the EU. Furthermore, the binding nature of the instrument would ensure that the procedure has the same main features in all Member States. The instrument could set the main principles of such a procedure while the practical details should be left to national legislators. This would allow for the possibility of adapting the procedure to the requirements and specificities of national law.
The compensation order procedure could successfully tackle most of the obstacles which preclude consumers from obtaining compensation in mass harm situations with low value individual damage. Firstly, the case would be taken up by a consumer protection authority what would solve the problem of a lack of initiative by consumers. Secondly, the procedure would be free of charge, swift and with minimum formalities for consumers. Moreover, the problem of a lack of awareness would possibly be reduced to some extent by the requirement for traders to inform injured consumers about the decision made. The procedure would have an advantage against most of other collective redress mechanisms of providing the consumers with assurance at the moment of submitting the claim that they will receive compensation as the infringement of the law by the trader has been already established (unless, of course, the consumer cannot prove the damage or causality). Finally, such a procedure should be relatively cheaper for consumer protection authorities than, for example, representative collective actions as it does not include complex litigation and does not require continuous communication with multiple numbers of consumers.
The ability of public authorities to deliver swiftly and cheaply satisfactory redress in mass harm situations has been observed in practice. The Danish Consumer Ombudsman and UK financial services authority has had collective redress powers since 2008 and 2010 respectively which proved to be very effective.105 In most of the cases these powers did not even have to be used at all as settlements were negotiated with companies which sought to avoid the procedure and consequential reputational damage.106
A compensation order procedure would be a better solution than other collective redress mechanisms. Group actions, both where one of the consumers acts as a representative and were all of the consumers participate in the litigation process, would not be a suitable solution as a low
105
Hodges 2012 (supra note 103), p. 5.
106
Ibid.
24
value of individual claim would discourage consumers from initiating the procedure. Moreover, this type of mechanism would be costly and would include potentially lengthy litigation. Representative action where an intermediary represents harmed consumers would also be a less appropriate option for these situations as these, again, would require significantly larger financial resources.107
4.2 Collective ADR
For mass harm situations where individual damage is of a low to medium value consumers are more willing to seek compensation than in cases were individual damage is very low, however only if sufficiently cheap and fast redress mechanisms exist. Therefore collective ADR schemes may provide an effective solution.108
An appropriate measure at the EU level would be to amend the Directive on consumer ADR requiring Member States to ensure that collective consumer claims can be submitted to an ADR scheme. Although the Recommendation on common principles for collective redress encourages Member States to establish collective out-of-court dispute resolution procedures, the non-binding character of this instrument does not guarantee full coverage of such procedures throughout the EU.109 Furthermore, the main aspects of the collective procedure should be provided in the directive to ensure its sufficient quality and accessibility.
The second measure could be to provide for mandatory participation of businesses in the collective ADR schemes in certain sectors. These could be the sectors where according to the Problems study it is the most difficult for consumers to obtain satisfactory redress: financial, telecommunication, package travel.110 The obligation to participate in collective ADR procedures could be incorporated into sector specific legislation, for example the Package travel
107
The argument that public authorities could deliver compensation much faster and cheaper than judicial collective redress mechanisms has been provided also in Hodges 2012 (supra note 103), p.5.
108
The developing of collective ADR in Europe was strongly advocated by Christopher Hodges. See, for example: Hodges 2014 (supra note 24), p. 84-85; Hodges, Christopher. ‘Current discussions on consumer redress: collective redress and ADR’, ERA Forum (2012) 13:11-33, p. 16-17, accessible at:
http://link.springer.com/article/10.1007%2Fs12027-011-0245-5#page-1 [Accessed on 17 July 2014].
109
Some authors assert that national governments are somewhat reluctant to find additional funds to ensure coverage of ADR schemes or to impose these costs on the industry. See: Hodges 2012 (supra note 108), p. 10.
110
The Problems study (supra note 4), p. 21-30.
25
directive111 and the Directive on markets in financial instruments112. Moreover, in these cases it could be provided for a binding effect of the decision in collective ADR procedures on the businesses.
Finally, for cross-border collective ADR cases a regulation could be adopted which would determine certain procedural matters, such as standard forms, means of communication and procedural guarantees for the parties. Also an active role could be played by the members of ECC-NET and FIN-NET.
The above mentioned measures at the EU level could improve possibilities for consumers to obtain redress through collective ADR. Firstly, they would ensure full coverage of collective out-of-court dispute resolution schemes for all consumer disputes. Secondly, they would alleviate the problem of non-adherence by traders to ADR schemes by providing for mandatory participation of businesses operating in certain sectors. Finally, the proposed measures would reduce the obstacles consumers face in cross-border collective cases by facilitating the identification of a competent scheme, communication between the parties and the ADR body and by harmonizing certain procedural matters.
The development of collective ADR would be the best solution for improving consumer access to justice in mass harm situations where claims of individual consumers are of low to medium value. Firstly, as was mentioned, ADR is generally cheaper and faster than collective court actions.113 Secondly, relatively low individual damage could point to less complex facts of the case and therefore justify the use of a simpler procedure. Finally, the lower costs of ADR procedures would make the problem of financing collective cases less acute than with regard to collective judicial redress mechanisms. However, as participation of traders in the ADR schemes, after the implementation of recommended measures, would remain mostly voluntary it is
111
Council Directive 90/314/EEC of 13 June 1990 on package travel, package holidays and package tours.
112
Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU, OJ L 173, 12.6.2014, P.349.
113
Hodges 2014 (supra note 24), p. 84.
26
important that effective collective judicial redress mechanisms would be in place to ensure that sufficient incentives exist for businesses to seek out-of-court dispute resolution.114
4.3 Judicial collective redress mechanism
An important step forward in improving consumer access to justice would be ensuring that effective judicial collective redress mechanisms are available in every Member State. These mechanisms are essential for guaranteeing the possibility to consumers in mass harm situations to secure compensation, as individual means of redress, as has been showed, are often not capable of dealing with this task. Furthermore, the availability of well-designed judicial collective redress procedures is a necessary prerequisite for effective functioning of collective ADR schemes. In this light, measures at the European level are recommended.
Firstly, a directive should be adopted requiring Member States to set up judicial collective redress mechanisms which should be available for consumer disputes in any sector and throughout all the territory. The directive should provide for representative action which could be initiated by public consumer protection authorities and designated consumer organizations. To prevent unmeritorious litigation, the procedure could be based on the same principles as contained in the Recommendation on common principles for collective redress mechanisms. However, to avoid significant differences between national mechanisms exceptions to safeguards should be avoided.
As regards specific provisions, the directive should also stipulate that representative authorities and organizations in case of success could be able to recover from a defendant not only the litigation costs, but also the costs incurred for the preparation of a case. Secondly, collective actions should be exempted from court fees.115 Finally, although the ‘loser-pays’ principle would remain, the costs recoverable by the defendant if the collective action fails should be capped. It could be done, for example, by linking the amount of recoverable costs to a certain percentage of the total value of a claim, which could not be exceeded.
114
Tzakas, Dimitrios-Panagiotis L. ‘Collective Redress in the Field of EU Competition Law: The Need for an EU Remedy and the Impact of the Recent Commission Recommendation’, Legal Issues of Economic Integration 41, no 3 (2014):225-242, p. 231-232.
115
This was considered inBenöhr 2014 (supra note 93), p. 254.
27
Secondly, amendments to the Brussels I, Rome I and Rome II116 regulations should be made to include special provisions for collective redress. In the Brussels I regulation, the jurisdiction to hear collective representative cases for the court of the Member State where consumers are domiciled and also for the court of the Member State where the defendant is established should be stipulated. In the Rome I regulation a rule for collective cases should be inserted that would provide for the applicable law of the country where the consumer is domiciled. Also, the choice of law rule should be abolished in relation with collective actions.117 As regards collective cases based on a tort the Rome II regulation should provide that the law of the country where the damage occurred is applicable.
The abovementioned measures by reducing the existing problems would facilitate obtaining compensation for consumers through collective judicial redress procedures. Firstly, the binding nature of the directive would ensure that collective redress mechanisms are available in all the Member States and for all consumer disputes. Secondly, as the envisaged procedure would be a representative action it would be free of charge for consumers and would not require consumer involvement in the litigation. This would ensure that the costs of pursuing compensation, in terms of money and time, are low for consumers. Secondly, adjustments to the ‘loser-pays’ principle and exemption from court fees would reduce the problem of lack of financing for collective actions. Furthermore, the capping of costs recoverable by the defendant would ensure that risk exposure is known before the case is launched. Consequently, this would make third party funding more possible. Finally, amendments to the Brussels I, Rome I and Rome II regulations would facilitate cross–border collective cases. Firstly, representative actions where all of the consumers come from the same member state could be brought in their country of domicile and this would save costs for the intermediary. Secondly, the rule in the Rome I regulation allowing avoidance of choice of law clauses would simplify collective litigation, especially in the cases where all of the consumers come from the same Member State as only a single law would apply. Furthermore, the connecting factors would be clear, and the jurisdiction
116
Regulation (EC) No 864/2007 of the European Parliament and of the Council of 11 July 2007 on the law applicable to non-contractual obligations, OJ l 199, 31.7.2007, p. 40.
117
The possibility of avoiding choice of law clauses has been considered in: Tang, Zheng Sophia. ‘Consumer collective redress in European private international law’, 2011, p. 36. Accessible at: http://ssrn.com/abstract=2079237 [Accessed on 15 July 2014].
28
and the applicable law would be easily determinable and known before the start of litigation which would ensure legal certainty.
Although many authors emphasise the need for reforming the European private international law framework to adapt it for collective cases118, opinions separate on the possible connecting factors. As regards jurisdictional rules, some authors suggest that collective action should be brought in the courts of the Member State with which the action has the closest connection119 or of the Member State in which majority of consumers are domiciled120. These connecting factors, however, would be less suitable than those proposed in this paper. Firstly, the notion of ‘closest connection’ is too vague and its meaning will heavily depend on the interpretation by the court in each case. Therefore legal certainty would be compromised. Secondly, providing the jurisdiction for the court of the Member State where most of the injured consumers are domiciled would not satisfy the proximity criterion. This may result in the situation where the court would have to rule on the collective dispute part of which has no connection with the forum. As regards, the choice of law rules some authors121 and the Commission122 advocate the idea that the law of the country where a defendant has its habitual residence should apply. However, this would mean that consumers would lose the protection they currently enjoy under the Rome I and Rome II regulations. It is questionable whether this result is justified by the mere fact that a consumer is pursuing compensation through a collective redress mechanism and not by individual action.123 Furthermore, such a regulation would be less favourable to the above recommended representative action as foreign law would have to be investigated.
118
See, for example: Tang 2011 (supra note 117); Stadler 2013 (supra note 88); Danov, Mihail.’The Brussels I regulation: cross border collective redress proceedings and judgements’, Journal of Private International Law, Vol. 6 No 2, [359-393].
119
Tang 2011 (supra note 117), p. 35.
120
Stadler, Astrid. ‘Cross-border Mass Litigation – A Particular Challenge for European Law’ in J.Steele and W van. Boom (eds.) Mass Justice – Challenge for Representation and Distribution, Cheltenham: Edward Elgar 2011, p.81.
121
Tang 2011 (supra note 117), p. 36.
122
Green paper on Consumer Collective Redress 2008 (supra note 29), paragraph 59.
123
Stadler 2013 (supra note 88), p. 487.
29
