Collective RedressIn The European Union

Julien Bedhouche

FERMA EU Affairs Adviser

« Redress is not an option, it is a requirement »

Professor Christopher Hodges, University of Oxford

Agenda

I- How to achieve consumer protection

II- State of Play in the European Union

I – How to achieve consumer protection

How to define redress?

Consumer redress is an objective and it means fair and swift reparation for any

harm suffered

How to define collective actions?

They belong to Courts, a.k.a. the Private Litigation world

They’re one technique among many others to achieve consumer redress

A bit more theory…

How to enforce consumer redress?

PublicRegulation

AlternativeDispute

Resolution

Private Litigation

The US precedent…

US Cultural drivers

Compensationgo to « shout »  in court to

enforce your rights

Deterrence« Don’t do it again… »

Mistrust regulators seen as weak, underfunded

and ineffective

II - Collective Redress In the European Union…

• Collective Redress in 8 Member States: quick overview

• The 3 key points for FERMA

• The legal action of the EU

Collective Redress in some EU countries

• Germany• Spain• Sweden• Poland

• Netherlands

• Belgium• Uk• France

Germany

• The “KapMuG”, Capital Market Model Proceedings Act since 2005 and revised in Nov. 2012 until 2020 (“sunset” clause).

• Collective actions are to be built on pre-existing cases brought to law. It’s a start in mass litigation (Deutsche Telekom case)

• Safeguards against abusive litigation exist: “loser pays” principle.

• Many Germans have a legal fees insurance policy, and the insurance companies have a scrutiny right to see if the case is valid.

Spain

• For 13 years now, this Act is the closest class action system to the US system.

• EU Authorities put Spain as an example but for many commentators the Spanish “class action” does not work

• Spanish courts have put some limitations with safeguards: opt-in framework, need for an individual focus to preserve the defendants, consumer associations must show every personal notification from each plaintiff.

Sweden

• Around 20 Collective Redress cases per year are raised since 2003

• But only 12-15 cases have really reached court in 12 years, most against the government.

• Some took several years.

• One reason why the class procedure is not used is the existence of very efficient consumer ADR schemes

Poland• Class Action Act adopted in December 2009. 60 cases up to day.

• Too much emphasis on a court-based justice (mainly for historical reasons, post-communist era, strong appetite for access to justice)

• There is no pressure to settle and ADRs are not appreciated by the public opinion (lack of credibility: independence)

• There is a “Security for costs” system that can be requested by the defendants (up to 20% of the case value to be paid in cash). Not always granted by courts though.

Netherlands

• The Netherlands’ class settlement procedure (WCAM) has been used in six large cases since 2005

• There is an extensive ADR system in the Netherlands, and a general culture of settlement.

Denmark

• The public consumer ombudsman has a dual and complementary role: – hard law (binding powers, act as deterrence)– soft law (sectorial negotiation with the industry for guidance, efficient

because of the hard law part)

• Good safeguards for collective redress (court approval, “loser pays” principle”, no punitive damages).

Belgium• No class action yet but new proposal in July 2013

• Other approach: mix of public enforcement and ADR with regulators in energy, telecom, financial services, environment– Setting a fund, take out some particular claims out of courts

(disasters, medical malpractices...)– Piggybacking technique during criminal proceedings

(request based on the evidences of the public prosecutor, victims join the case and just have to demonstrate they are victims (damages and causes)

UK• Sectorial consumer dispute resolution schemes: public

sector, financial services, energy…

• Close link between ADR body and the correspondent public regulatory authority

• Different ombudsman approach:

-Powers (investigation, information, administrative orders)

-Instruments (binding or not, simple recommendation)

-Relation between traders, consumers and the ombudsman (business codes of conducts, guidelines)

France

• New collective claims proposal in May 2013

• Only for consumer associations, harmed consumers could benefit from the decision afterwards

• Health & Environment are excluded

3 Key points for FERMA

1. Out of court settlement are best both for consumers and companies

2. Proportionality to the nature of the offence and the harm caused: no punitive damages in order to limit effect on the professional liability insurance market

3. Compliance is a priority for companies and first as a reputational tool

The EU Recommendation

• Non-binding legal instrument released on 11 June 2013

• 4 years implementation phase before any new binding action (June 2017)

No harmonisation but a horizontal approach

• The scope of the Recommendation is very wide

• The principles are applying to every sector, Financial Services and the Environment are explicitly mentioned in the document (recitals 7 & 23)

Concerns have been heard…

Safeguards are here:

Article 13 - « Loser Pays » principleArticle 21 - Opt-in system

Article 27 – Time limits suspension for ADRArticle 31- Ban on punitive damagesArticle 32 - Ban on contingency fees

But still…

Central role given to courts when everybody knows they are already flooded with cases and under budget constraints

Beware of a Catch 22 situation regarding safeguards

Conclusion

Collective Redress should not become a profitable business for some professions.

Litigation is a back stop and must be a last resort solution

Compliance: the 4TH pillar to achieve consumer protection?

• Obvious but common sense: companies do things, they don’t do litigation, and it’s not in their business model.

• Never forget that going to courts is highly inefficient and expensive.

• Private litigation does not reward all the good compliance work.

• Reputational damage has become the main driver for compliance.

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