Collective Litigation
1. Purpose and objectives
The traditional civil trial is based on the assumption of citizens of equal abilities fighting as plaintiff and defendant for their rights in court. Emphasizing the protection of individual rights, this model fails if parties have no incentive to bring legal action, as is often the case when the individual has sustained only small damages. Given the financial and personal disadvantages of a court case, legal proceedings often appear economically unprofitable to the potential claimant. For society as a whole, this outcome is unsatisfactory if the aggregate damage caused by the wrongdoer has been considerable. In a situation like this, it seems unfair for the culprit to escape unpunished and keep his illegally amassed gains. The various instruments of collective litigation can help to overcome this problem. The purpose of collective litigation is the efficient enforcement of so-called ‘diffuse’ interests beyond the individual level. Notwithstanding its somewhat misleading name, collective litigation is by no means linked to communism or even socialism. In fact, its aim is to overcome the individual’s rational lack of interest by providing alternative litigation mechanisms.
In many European countries, the association or interest-group complaint (Verbandsklage) is the most important form of collective litigation. Historically, the Verbandsklage can be traced back to the German Unfair Competition Act (UWG) of 1896, the first legal codification against unfair trading practices. According to its provisions, in addition to individual competitors, associations whose purpose was to promote commercial interests were entitled to bring a claim seeking injunctive relief in relation to unfair practices. To this day, unfair competition law remains one of the most important areas of collective litigation. A second important law area is consumer protection (consumers and consumer protection law), partially because of the Injunctions Directive (Dir 1998/27), which has extended the reach of interest-group complaints throughout Europe.
In addition to the Verbandsklage, there are other forms of collective litigation, including group actions, the well-known US class action among them. Whereas the Verbandsklage is intended to further the general public good and not just the interests of the members of the organization, group actions are primarily concerned with the individual interests of the group members. Mass accidents with large numbers of victims who are clearly identifiable are typical examples of scenarios leading to group actions. In a situation like this, it is not so much the rationally disinterested individual but rather considerations of procedural economy, ie easing the burden on courts, which call for combining the individual claims into one encompassing group action. With an increasing number of group members, the line between group interests and public interests becomes blurry. The larger the group (eg ‘all smokers’), the less a specific group interest can be distinguished from the general public’s interest in enforcement of the law.
2. Legal developments
Over recent years, collective litigation has been subject to profound changes on the national, the European and the global level. Notwithstanding opposition from business interests, the overall trend points unambiguously towards a broadening of existing forms of collective litigation as well as the introduction of new forms. In Germany, the Verbandsklage is traditionally rooted in unfair competition law and in the law of standard contract terms. Over the past several years, interest-group complaints have been expanded to other areas including competition law, telecommunications law, labour law and environmental law. Moreover, new remedies have been added, most notably the so-called skimming-off actions that allow for skimming off illegal profits, although this remedy is reserved for unfair competition and antitrust cases. Model proceedings represent a new type of collective litigation recently established under the German Capital Markets Model Case Act (KapMuG). They apply to first instance claims in which compensation for damages due to false, misleading or omitted public capital markets information is asserted. If at least 10 similar applications have been filed with the trial court, a ‘model case’ is established and it is then submitted to the court of appeals. After conducting the model case proceedings, the appeals court renders a judgment on the model questions which is binding on trial courts. Closely followed by other European countries, the KapMuG is an experimental law that, according to its (already once amended) sunset clause, becomes ineffective November 2012 if not extended again. Thus far, the KapMuG’s model case procedure has produced mixed results.
In France, there exists a different type of interest-group complaint. Subject to authorization by law, a great variety of associations originating from the most diverse social domains have the right to sue. The associations are supposed to represent a ‘collective interest’, to be distinguished from the individual interest and the public interest. The most common form of association suit in France is the action civile, directed at compensating damages resulting from a criminal offence. The association’s role is that of a private claimant in a criminal procedure. If the collective interest affected is rather vague, as may be the case with the general ‘consumer interest’, the compensatory function is only secondary to the punishment of the offender.
Elsewhere in Europe, group actions are also becoming more common. Inspired by the work of Per Henrik Lindblom, Sweden launched in 2003 a new law introducing group action procedures. The Swedish group action, whose final version is less similar to US-style class actions than originally envisaged by Lindblom, can be brought in three different ways: as a ‘private’ group action to be instituted by either natural or legal persons; as an ‘association’ group action to be brought by non-profit oriented associations; and as a ‘public’ group action to be filed by public authorities. Unlike private group actions, association group actions and public group actions can be brought regardless of the association or the public authority having a material claim. In practice, the majority of group actions so far have been instituted by the consumer ombudsman. Comparable group action laws have recently been enacted in Denmark and Norway. In contrast, the English legislature introduced a so-called multi-party action in 2000, based on the proposals of the Woolf Report. Unlike the already existing representative action, multi-party actions allow for monetary relief. If several claims raise identical or similar questions, the court can issue a group litigation order. In addition, the court can appoint a lead solicitor from among the parties’ attorneys or it can select a test case to be litigated in a kind of model proceeding. Compared with group actions in the proper sense, multi-party actions are different in that all claimants are parties to the trial.
3. Technical issues
The unification of collective litigation poses many challenging questions. Due to the political nature of collective litigation, the debate is highly controversial, starting with the basic question of how much collective litigation is reasonable and necessary. In many countries, collective litigation is met with scepticism, in particular among the business community, which is fearful of the ‘Americanization’ of procedural law. Mindful of US class actions practice, businesses worry that crafty trial lawyers may use collective litigation instruments to bring unsubstantiated damage claims against them. The US experience shows that even where claims are unfounded, corporations rather prefer a settlement to a protracted court case and the bad publicity that goes with it. Therefore, class actions rarely end with a judgment. However, it is questionable to what extent the experiences in the US apply to Europe. One may argue with good reason that the potential for blackmail does not rest so much in class action itself but rather in a combination of other factors pertinent to US law, including punitive damages, contingency fees, trial by jury and extensive pre-trial discovery procedures. In Europe, the US model is generally perceived negatively, resulting in a debate dominated by the question of how to prevent the abuse of collective actions. These concerns notwithstanding, European countries have come to recognize collective litigation as a useful instrument, as demonstrated by the increase in legislation in this field.
The scope of application is another issue to be dealt with under a potential uniform law of collective litigation. In principle, there are two options. Either collective actions are comprehensively allowed, encompassing all or most areas of law, or they are restricted to selected subject matters. Whereas the US class action adheres to the first model, the second model prevails in most European countries. The selective approach is fraught with problems, beginning with the incoherent selection of the areas of the law covered by collective litigation. In Germany and France, this method has resulted in a patchwork of legal rules not easily accessible. At the same time, following a selective approach allows the legislature to account for the distinctive features of each legal area. Closely linked to the scope of collective litigation is the question of which instrument is best suited. Although in Europe Verbandsklagen still prevail, some countries have already introduced group action procedures. Yet other countries prefer a combination of both forms, as exemplified by the Swedish association group action. Model proceedings under the German KapMuG are still another alternative. Finally, more traditional forms of combining individual law suits persist, such as joinder of parties and consolidation. They are, however, insufficient in cases of a large number of claimants that cannot be discerned easily.
A prospective uniform collective litigation law must clarify who may appear as a plaintiff before the court. To reduce the risk of abuse, in interest-group complaints, some countries demand associations to fulfil certain criteria in order to prove their trustworthiness, such as a stable membership basis and sound financial records. Considering that most associations lack the financial resources to make extensive use of collective litigation instruments, these measures seem superfluous. In group actions and in model case procedures, the selection of the person acting as representative on behalf of the group or as model claimant poses specific problems that cannot conclusively be dealt with ex ante. Lawmakers can stipulate certain criteria, such as the amount of the individual plaintiff’s claim, but in the end it is up to the courts to select the representative or model claimant at their discretion.
Another controversial issue, especially in group action proceedings, is whether the final judgment has a binding effect on all potential claimants. According to the opt-in model, claimants are bound only if they have approved of the collective action, whereas in the opt-out model claimants are bound automatically unless they have explicitly objected. In Europe, concerns regarding the opt-out solution abound, not least because of the constitutional right to be heard. But even in Europe, first signs of the opt-out group action model can be detected, namely in Denmark and Norway, where in small claims cases group members can be bound automatically if ordered by the court. With respect to every plaintiff’s constitutional and human right to effective judicial review and a speedy trial, the Nordic countries’ opt-out approach seems worthy of attention. But neither Danish nor Norwegian laws specify what to do with the proceeds in case the court finds in favour of the group. If group members cannot be identified, flexible solutions are required. As the example of the United States shows, possible solutions include founding a charity or handing over the funds to the state to be spent in accordance with the original purpose of the lawsuit.
A problem associated with association complaints are costs. Where should the funds that associations and interest-groups need to finance litigation come from? Besides membership fees and donations, funds are usually provided by the government—especially in cases of consumer organizations. The organizations’ litigation activities are, in other words, subsidized by the state. As a result of this dependence on state funds, consumer organizations are risk-averse. They are prone to avoid risky litigation and, instead, tend to file safer but less groundbreaking lawsuits. In order to recoup at least part of the costs, the association must be allowed to claim for damages and to keep the proceeds in case it prevails. But in most European countries, associations can merely file for injunctive relief. If, by way of exception, damages or illegal profits can be sought, the prevailing association usually has to remit the money to the national treasury. The idea behind this arrangement is to reduce possible abuses, but at the same time it prevents associations from litigating complicated and expensive cases.
4. Uniform law projects
The 1998 Directive on Injunctive Relief (Dir 98/27) was the first attempt within the European Union to harmonize some aspects of the law on collective litigation. Politically, the Directive is part of the ongoing efforts at the EU level to improve consumers’ access to justice. The purpose of the Directive is to enforce the collective interests of consumers with regard to speci-* fied consumer protection directives. The exact meaning of the term ‘collective interests of consumers’ is unclear. The Directive merely states that collective interests ‘do not include the cumulation of interests of individuals who have been harmed by an infringement’. In implementing the Directive, Member States were given great latitude. They can either entrust consumer associations, public bodies or both with the task of enforcing consumer interests. Public and private so-called ‘qualified entities’ exist side by side in some Member States, whereas in other states, such as Germany and Austria, only private associations are entitled to bring collective actions. Yet other countries, such as Ireland and Sweden, have nominated just one public body. The differing approaches are all consistent with the Directive. The Directive only requires Member States to provide for injunctive relief, but countries are also free to allow qualified entities to sue for damages. To date, only a handful of Member States have opted for monetary relief while other countries are still contemplating such a step. The chief purpose of the Directive was to facilitate cross-border litigation by qualified entities. To this end, the Directive committed all Member States to mutually recognize the legal capacity of such entities and to grant them legal standing before national courts. A list of all qualified entities to be drawn up by the European Commission shall ensure that the system works. Following from the principle of mutual recognition, the courts cannot dismiss a claim on the ground that a qualified entity from another Member State would not qualify the entity under the national laws of the forum state. Notwithstanding the Directive’s main purpose, cross-border collective litigation has not increased significantly within the EU since its enactment (see COM(2008) 756 final, paras. 13 ff). Moreover, the technique of minimum harmonization employed by the Directive left Member States free to decide on essential issues. As a result, the Directive has contributed only marginally to the harmonization of the national laws on collective litigation. As a result, the current state of collective litigation in Europe is characterized by a variety of mechanisms making it difficult for citizens seeking legal protection and businesses contemplating the consequences of potential law suits to navigate the scene.
Some time ago, the EU Commission launched a new initiative to further expand the law on collective litigation, especially in the fields of competition law and consumer law. With regards to competition law, the Commission hopes that collective actions instituted by private actors may help antitrust authorities with their fight against anticompetitive practices. In April 2008, the Commission published a White Paper (COM (2008) 165 final) suggesting concrete measures—collective redress among them—to improve compensation of consumers and businesses who are the victims of competition law violations. The Commission intended to present an official proposal for a directive in 2009, but because of stiff opposition from the European Parliament and the business community, an initial draft version by the Directorate General for Competition had to be withdrawn. In the field of consumer law, the Commission, in October 2008, introduced the proposal for a Consumer Rights Directive (COM(2008) 614 final) that intends to merge four EU consumer directives into one set of rules. To ensure that the national provisions for the implementation of the Directive are applied correctly, the draft envisages that consumer and professional organizations as well as public bodies shall have the right to take action before the courts under national law. In addition, the Commission, within the framework of the ‘EU Consumer Policy Strategy 2007–2013’ (COM (2007) 99 final), is currently exploring whether collective redress could ensure that mass consumer claims are solved more efficiently. In November 2008, after lengthy consultations, the Directorate General for Health and Consumers (DG SANCO) published a green paper on consumer collective redress (COM(2008) 794 final), putting various policy options up for discussion. The reactions from legal experts and other stakeholders, including business organizations and Member States, were mixed. In the spring of 2011, the Commission conducted a public consultation process, aiming at a more coherent European approach to collective redress (SEC (2011) 173 final). The Commission received more than 300 submissions, mostly from private interest organizations and lobby groups. Whether these European initiatives will lead to tangible results is still unclear. With respect to environmental protection laws, the European Court of Justice has recently acknowledged that non-governmental organizations for the protection of the environment enjoy comprehensive rights to bring legal action based on European Union law even where national procedural law does not permit this—on the ground that the rules relied on protect only the interests of the general public and not the interests of individuals (ECJ Case C-115/09 – Trianel Kohlekraftwerk Lünen).
Literature
Jürgen Basedow, Klaus J Hopt, Hein Kötz and Dietmar Baetge (eds), Die Bündelung gleichgerichteter Interessen im Prozeß (1999); Dietmar Baetge, ‘Das Recht der Verbandsklage auf neuen Wegen’ (1999) 112 Zeitschrift für Zivilprozeß 329; Harald Koch, ‘Non-Class Group Litigation under EU and European Law’ (2001) 11 Duke Journal of Comparative and International Law 355; Hans-W Micklitz and Astrid Stadler, Das Verbandsklagerecht in der Informations- und Dienstleistungsgesellschaft (2005); Peter Rott, Ulrike Docekal, Hans-W Micklitz and Peter Kolba, Verbraucherschutz durch Unterlassungsklagen (2007); Willem van Boom and Marco Loos (eds), Collective Enforcement of Consumer Law (2007); The Study Centre for Consumer Law—Centre for European Economic Law Katholieke Universiteit Leuven, ‘An analysis and evaluation of alternative means of consumer redress other than redress through ordinary judicial proceedings’ Final Report (2007) 260 ff; Christopher Hodges, The Reform of Class and Representative Actions in European Legal Systems (2008); Deborah Hensler, Christopher Hodges and Magdalena Tulibacka (eds), ‘The Globalization of Class Actions’ (2009) 622 Annals of the American Academy of Political and Social Science 7; Fabrizio Cafaggi and Hans-W. Micklitz (eds), New Frontiers of Consumer Protection (2009); Harald Koch and Joachim Zekoll, ‘Europäisierung der Sammelklage mit Hindernissen’ (2010) 18 ZEuP 107; Deborah Hensler, ‘The Future of Mass Litigation: Global Class Actions and Third-Party Litigation Financing’ (2011) 79 George Washington Law Review 306.
