The lack of collective redress in Europe remains an issue for the European finance industry, especially from the perspective of investors and shareholders (see BETTER FINANCE paper here). Given that procedural law falls under the exclusive competence of Member States (still), there is no harmonising legislation fostering cross-border class-action lawsuits in Europe.
As became apparent following Dieselgate, it was difficult for investors and shareholders of Volkswagen as consumers to bring claims together in court. Moreover, the recent Opinion of AG Bobek in the Schrems[1] case didn’t make the situation easier, as he suggested that the provisions of Regulation (EU) 44/2001 should not be construed as allowing a claimant to pursue claims on behalf of other parties in a consumer related case (see article here).
Nevertheless, an article that appeared in The Economist suggests that overall the conditions are better in E.U. Member States than they are in the U.S., based on three considerations:
- first, the establishment of the ‘f-cubed’ rule: foreign investors that invest in foreign companies (registered outside the U.S., like branches) on foreign exchanges can no longer bring claims before U.S. Courts (usually against the mother-company);
- second, companies in Europe have started to either provide financing for class-actions or either provide insurance products for litigation costs;
- third, the fact that in Europe collective redress is opt-in based, as opposed to the opt-out system in U.S. What is more, in Europe, companies take on processes on behalf of claimants, in exchange of a ‘share of any settlement’.
That being said, the following should be mentioned:
- the latter type of remuneration is prohibited in several European countries under the ‘quota litis pact’;
- the opt-out system benefits a higher number of consumers, since a favourable judicial award will automatically affect each case concerned, whereas in Europe each claimant must act proactively and join the class-action; and
- the fact that now companies offer insurance or financing for collective-redress cases only provides a safety net for giants against enormous collective action costs. As we know, besides bad publicity, the major deterrent for companies facing customers’ collective redress is the financial burden they would have to bear, including litigation costs and damages.
It therefore remains a mystery as to why the author would think that Europe’s popularity as a ‘venue for litigation’ is increasing.
Read here:
The Economist: Europe is seeing more collective lawsuits from shareholders
BETTER FINANCE: More Calls for a Pan-European Collective Redress Mechanism.
[1] Case C-498/16 Maximilian Schrems et al. v Facebook Ireland Ltd., OJ C441.