Overview of collective redress

Background

"Class actions" or "collective redress" are terms commonly used to cover a wide range of court procedures aimed at allowing large numbers of claimants with identical or related claims to bring them together for the purposes of reduced costs and procedural efficiency. Such mechanisms are of particular relevance where many individuals claim small losses as a result of the actions of one defendant, such as in product liability cases, financial services misselling claims and environmental liabilities. In these cases the small loss suffered by each victim may make recourse to ordinary civil litigation may be disproportionately costly.

The most famous model of collective redress is the US class action, but this is only one type of representative action. In the US a named plaintiff brings an action on behalf of a class of people identified only by their circumstances, eg that they bought securities in a certain company within a certain period. If the court certifies the class, the action proceeds on behalf of all those in the class unless they take steps to "opt out" of the action. Many claims are identified by specialist plaintiff lawyers who then look for potential plaintiffs in order to get a class certified and ensure that they have the right to bring the claim. Plaintiff lawyers commonly act on a contingency basis, being remunerated with a percentage of any damages recovered. This means that there is no financial risk for the plaintiffs, but also that lawyers acting for a large class can earn very significant fees, particularly if the jury agrees to impose punitive damages beyond the losses actually caused, a permissible measure in the US in order to deter corporate wrongdoing.

There is widespread concern in Europe over the introduction of anything that could lead to the sort of class action litigation seen in the US. The class action model is widely considered "abusive", particularly as successful defendants rarely recover any of their costs from the claimants. Many cases are settled simply because the cost of the proceedings, particularly the extensive document discovery process that operates in the US, outweighs the cost of settlement.

The European model?

Europe has no single model of collective redress and many European countries have multiple procedures by which representative actions might be brought. However, several trends are identifiable, even if each is deviated from by at least one European country:

  • “opt in” versus “opt out”: whereas in the US a judgment or settlement can bind everyone within a class unless they take steps to preserve their own right of action (opt out), most (but not all) European systems tend to favour an approach whereby individuals must actively join the action (opt in) at the outset
  • representative organisations: many European systems of collective redress rely on consumer associations and other authorised bodies to bring actions, rather than allowing a lawyer-led approach as in the US, and
  • individual proof of loss: even where claims are brought together to determine a defendant's liability, many European systems require each claimant to show that they suffered a loss and that this was caused by the defendant's actions.

The future

Over the last five years there has been a slow but steady stream of legislation in European jurisdictions introducing new means of collective redress. Several countries are also considering further developments of their legal systems to introduce representative procedures, while the EU institutions continue to debate whether a pan European approach is required.

It seems likely that over time there will be more collective actions, particularly if cross border groups of claimants are able to "forum shop" by selecting where to bring their claim. The cross border implications of the different European systems have not yet been addressed and following developments in the Netherlands this is an area of growing uncertainty. Important judicial decisions on who can join a collective action in another state and who is bound by the outcome seem inevitable in the next few years.

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