The EU is moving towards creating a region-wide framework for class action 
litigation. A&O's Andrew Jeffries sizes up the controversial push for tougher collective redress

Once thought of as a purely US phenomenon, class actions, otherwise known as collective redress, have spread rapidly around the world over the last decade. Despite this, the actual system adopted – where there is one – varies enormously.

Some countries, such as France, have an objection on public policy grounds to opt-out regimes ('opt-out' being where all potential claimants are bound by a collective redress decision, regardless of whether they ever participate in the proceedings, unless they have expressly chosen to opt-out).

The Netherlands has no problem with opt-out, but its system only covers collective redress settlements. Italy and Poland introduced collective redress last year. Denmark has such a system, but it is apparently rarely used. Belgium's proposal for a US-style system is now apparently stalled in the legislature. Forum shopping is becoming common to take advantage of, or avoid, relative court speed and procedural differences, such as on disclosure.

The European Commission's (EC's) policy is driven by the view that it continues to be difficult for consumers to pursue effective enforcement through the courts. Its study in 2008 found that 50% of those consulted would not bring a claim for less than €200 (£174), and 20% would not claim for less than €1,000 (£868). The situation is, in the EC's view, made worse by the lack of a coherent collective redress mechanism across the European Union.

About half of EU member states, including England and Wales, have little or no effective collective redress system. Thus, the Commissioners for Competition, Justice and Health and Consumer Policy jointly decided to revive longstanding plans for collective redress across the EU in the form of a consultation launched in February 2011, open for 
comments until 30 April 2011 (although some groups have apparently sought an extension).

The issue is nothing new: there have been three green and white papers on collective redress in the context of antitrust cases, or more generally, in the last six years. The white paper on antitrust damages became a draft directive and was within a few days of becoming law in 2009 before being abandoned. But despite all this activity, nothing concrete has so far emerged.

There is no surprise that consumer groups are all in favour while businesses are generally against. At an all-day EU Parliament debate on the issue last month, submissions from all interested parties were heard. Consumer groups complained that this issue had been on the table for years with nothing achieved. Business groups expressed their concern that any EU proposals would lead to a mass of frivolous or nuisance claims, costing millions to deal with and the loss of competitive advantage for EU businesses.

The consultation

The February 2011 consultation paper took the form of 34 open-ended questions. More or less everything is still on the table, including alternative forms of funding for consumer cases, enhancement of the loser pays principle, opt-in or opt-out only regimes and, above all, a broad spectrum of possible EU response ranging from mandatory EU-wide legislation on collective redress to encourage member states to adopt some form of the process. Such a broad consultation takes us back to square one and reflects the EC's inability to come up with a workable solution, despite the years of thinking so far.

So what may yet come out of this? There are a number of significant issues and obstacles, which lead me to conclude that as set of guiding principles for member states is the best result that can practically be achieved. The issues include:

- The EC recognises the need to prevent vexatious litigation, a key business objection to such proposals. No clear solution is proposed.

- The loser pays principle, which prevails in civil litigation in England and Wales, is seen as a good deterrent to vexatious claims, but is alien to most of Continental Europe and it will be politically and practically, if not also legally, impossible to introduce where it does not already exist.

- There are jurisdictional issues over whether the EC has the power to achieve its objective of a uniform mandatory collective redress procedure across all member states. While some work around to this may be possible, imposing civil procedure on individual member states may be beyond the EC's powers and appears also politically impossible to achieve. That would leave the EC with only its more modest objectives.

- As already noted, France has a public policy objection to litigation which proceeds on an opt-out basis, where parties are bound by a court decision for proceedings in which they take no part, and may even have no notice. This was clear from the Amicus brief of the French Government in the US Supreme Court case of Morrison.

Some other EU countries have the same concern. This is likely to make an EU proposal which includes opt-out collective redress impossible. This is also an area of significant concern to business: under the UK Finance Bill proposals discussed below, losing defendants in an opt-out case may have had to pay damages based on the whole potential class, many of whom would never claim, or are even time barred. Unclaimed damages, far from being refunded, could go to charity. The same concerns arise for the EU consultation.

- How to fund collective redress actions, especially for consumers, has been a long-running debate, with member states adopting a variety of different approaches. This includes state funding such as legal aid, after-the-event insurance, funding by consumer groups or modification to the basis on which the litigation costs are allocated. Any proposals that include some form of sponsorship for collective redress will meet understandable resistance from the business community. The concern is that without the rigour of a potential costs penalty, vexatious claims will be promoted.

Similarly, if a collective redress action is lost, how is the successful defendant to be compensated, especially where few potential claimants are party to the action?

The closing words of the EU Parliament debate were to expect some sort of a response by the end of the year. With extensions sought for submissions on the consultation, that seems set to drift. My first conclusion is therefore that only the EC's more modest objectives are achievable, and even that does not seem set to happen soon.

Implications for 
England and Wales

England and Wales do not have a collective redress system. While group litigation orders can be made under CPR 19.10-15, these are little more than consolidation of cases. Representative actions under CPR 19.6 are little more than having a test case. The Court of Appeal, in Emerald v British Airways, has confirmed that the courts will not attempt to use flexibility within the CPR to create a collective redress system by the back door.

An opt-in and opt-out collective redress system for financial services claims came close to implementation in the Finance Bill 2010, being dropped in the run up to the general election.

This did attract considerable controversy, with many of the objections to the EU collective redress proposals applying equally to these specific proposals. It is not yet clear whether this will be revived by the new Government. It is also not known whether other Government departments will adopt collective redress proposals for their sectors.

However, collective redress systems are growing across the EU, and indeed worldwide. They are present in Canada and Australia, and the Hong Kong Law Reform Commission is now looking at its introduction there. Fears of litigation business going overseas to take advantage of collective redress systems are growing.

Particularly successful has been the Dutch system of class action settlements, used, for example, in the Shell reserves litigation. While this applies to settlements rather than claims, it is proving a workable and useful alternative to the US. This gives concern for England and Wales losing a competitive edge in commercial litigation.

On top of this, the Scottish Parliament has recently declared that it is in favour of introducing some sort of collective redress mechanism. The recent electoral success of the Scottish National Party may change Scottish priorities, but if collective redress does come in, the ease of forum shopping with England and Wales will add to the pressure on the UK Government to introduce something in England and Wales.

My second conclusion is that, regardless of the success or failure of the EU's own initiative, collective redress is here to stay, in one form or another, and the pressure on England and Wales to introduce such a system will grow steadily. As the experience of the Finance Bill shows, the shape of such a mechanism remains very much a controversial issue.

Andrew Jeffries is a litigation partner at Allen & Overy and heads the London class actions practice.