The howls of protest from business groups could be heard across Europe. On 11 April, the Commission proposed to make collective compensation claims possible when large numbers of consumers have been harmed by the same trader. Cue uproar and pandemonium. Business groups claimed the proposal would “violate fundamental rights of businesses” or “protect neither consumers nor businesses”.
These types of gloomy warnings have always accompanied the major legislative changes in history. Yet, the negative predictions are massively overblown.
For example, the 1970s saw huge debates around Europe about whether to make seat belts compulsory. In the UK, the police said they would waste their time and civil servants worried that old people would not wear them. In France the fight against it was taken up by defenders of civil liberty. Today, it is taken for a given that you put on a seat belt when you get in a car.
Looking at facts
Our point is co-legislators have to go beyond the shouting and look at the facts, just like the Commission did. This is particularly important when it comes to business groups’ main claim: that in introducing a collective redress scheme, the EU would be actually importing a US-style litigation culture.
Saying it doesn’t make it true.
There are three major reasons why what the EU is proposing is nothing like the US system of class actions.
1) No law firm can initiate a collective redress case in the EU. Unlike in the US, only consumer and non-profit groups would be able to do that. This means the model often decried in the United States, where law firms are said to make money by chasing victims of a mass harm situation, would simply not be possible.
What’s more, there are five countries in the EU that already have a fairly well-functioning collective redress system and in none of them is it possible for law firms to initiate proceedings as they are not on a special register, which is limited to non-
profit and consumer groups. In Belgium, a consumer organisation that wants to be one of these group representatives has to be either represented in the country’s Consumer Commission or be approved by the Minister of Economic Affairs. The Commission proposal also requires an organisation to be on a list of special entities before it can initiate any proceedings.
2) It isn’t possible to seek punitive damages in the EU. This is a huge difference with the US. Unlike in the US, where you can go to court on behalf of many consumers and seek damages as much as three times higher than the actual detriment caused to consumers, in the EU punitive damages just don’t exist and the Commission proposal doesn’t introduce them.
3) The use of the ‘loser pays’ principle in the EU means only cases which have a solid basis go forward. It means that a consumer organisation will think long and hard about whether to launch a case. Consumer groups who launch a case bear a double cost if they lose – they would have to pay their own legal fees and those of its opponents. The financial risk for a not-for-profit group is just too big to bring spurious claims to court. As a result, the cases we’re aware of in the 5 EU countries with a workable collective redress scheme today shows that “abusive” litigation is simply not an issue. For instance, none of the collective cases introduced by Portuguese consumer group DECO in Portugal, which has a collective redress procedure since 1995, has been discarded.
These three basic, yet important, points set the record straight: the EU’s proposal is not introducing US-style litigation.
Saying the contrary is just fearmongering.
Balancing the scales
What this proposal does is better balance the scales when consumers are misled or treated unfairly. It is a bête noire of the businesses who are afraid of being held to account by the consumers they cheat.
Of course, most businesses are not cheats. They are more interested in keeping their clients happy than in deceiving them. That’s why it’s wrong to only hear business groups who defend the status quo. The vast majority of companies are going to be better off with this proposal because they’re honest. It’s the dishonest ones that will be put in a corner.
The EU’s proposal is not opening the door to US-style litigation, it opens one to EU-style collective compensation. And if you’ve read the odd article about VW, you’ll know it’s long overdue.