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EU consults on class action-style suits

Class action-style law suits could become a feature of European law in more areas than just competition and consumer protection law, according to European Commission plans.16 Feb 2011

The Commission has asked citizens and businesses to help it to formulate the underlying principles that should govern laws on 'collective redress', where many people in a similar situation participate in a law suit against one company or organisation over an alleged breach of the law.

Class action lawsuits are common in the US, where lawyers will earn large fees for organising many similarly-affected people into large law suits. Such suits do not exist in the European Union, but the Commission has previously consulted on collective redress in the fields of competition and consumer protection law.

It has now asked for the views of the public and business on what it should consider if creating laws that would allow collective redress to operate more widely.

"The purpose of this consultation is, among other things, to identify common legal principles, should a future Commission initiative be presented on collective redress and how these principles could fit into the EU legal system and into the legal orders of the 27 EU Member States," said a Commission statement.

"The consultation also explores in which fields different forms of collective redress ... could have an added value for improving the enforcement of EU legislation or for better protecting the rights of victims," it said.

"Where the same breach of EU law harms a large group of citizens and businesses, individual lawsuits are often not an effective means to stop unlawful practices or to obtain compensation for the harm caused by these practices: Citizens and businesses are often reluctant to initiate private lawsuits against unlawful practices, in particular if the individual loss is small in comparison to the costs of litigation," said the Commission's consultation paper (14-page / 64KB PDF). "As a result, continued illegal practices cause significant aggregate loss to European citizens and businesses."

Collective action should be considered because it could address a failure of legal systems to give access to justice in some cases, it said.

"The Commission considers that the diversity of existing national systems and their different levels of effectiveness, and the lack of a consistent approach across the EU, may undermine the enjoyment of EU rights by citizens and businesses," said the statement. "A coherent EU framework, drawing on different national traditions, could facilitate strengthening collective redress in targeted areas."

Collective redress is not a totally new concept in EU law, the Commission said. Injunctive redress, which allows collections of people to stop an organisation behaving in a certain way, already exists in consumer and environmental law. Some EU legal systems have compensatory relief in collective redress cases, but some do not, it said.

The Commission said that it wanted to establish a set of principles to use as a basis of collective action to ensure consistency in different areas of law.

Those principles include: a need for effectiveness in the means of redress; a need for safeguards to prevent abuse of any collective process; the need for financing for individual or small company claims; and the need for enforcement across the EU.

"These principles could apply to all forms of collective redress (injunctive and/or compensatory) although some might be more relevant for compensatory collective redress," said the consultation.
The Commission has asked for responses to its consultation by 30 April. It will take those responses into account when deciding whether new laws implementing collective redress are necessary.

Previous Commission papers on collective redress in the consumer and competition law fields did not result in new laws being passed. The European Parliament backed the competition law proposals in 2008, though.

In its 2008 proposals on consumer collective redress the Commission said that it might cap legal fees to lower the cost of taking collective action, or might even recommend that countries fund some of the actions out of public money.