Collective Redress across the globe
Collective redress procedures, in which a number of claimants with similar or related interests group together to bring a combined action against a defendant or group of defendants, are becoming increasingly important in civil litigation. The availability and effect of collective redress differs widely between jurisdictions. Some countries have embraced the concept and permit collective actions in a variety of claims. In others, the procedure may only be used in limited circumstances and for specified causes of action. Businesses, particularly those with cross-border operations, need to be aware of the potential differences in approach across their global market – and the consequent risks they may face.
Types of collective redress mechanism
The best-known example of collective redress in practice is probably the U.S. class actions procedure. These sophisticated and highly developed proceedings are a regular occurrence in U.S. litigation, with claims potentially being brought by a single class representative on behalf of many claimants in a wide variety of circumstances. Although none of the other jurisdictions featured in our Review is currently planning to introduce U.S.-style class actions, the “long arm” of U.S. jurisdiction is well known. Businesses based outside the U.S. but with operations there, may well find themselves involved in class action litigation in the U.S. courts. The class action lawsuit against German car manufacturer Volkswagen, resulting from the alleged diesel emissions scandal and brought by a North Carolina man and hundreds of other vehicle owners in the U.S., is a recent example.
Nonetheless, all the jurisdictions featured in this Review have one or more mechanisms by which claimants can group together, either before or after proceedings have commenced, to have their claims heard by the court in one set of proceedings. Sometimes the power to do this is restricted to certain types of action, such as the KapMuG in Germany, which operates in the context of capital markets disputes only. In other jurisdictions, such as Belgium, the ability to bring collective actions is limited to matters of consumer redress.
Who may bring them and in what circumstances?
Often, the power to bring a collective action on behalf of many claimants is restricted to particular representative bodies, such as consumer protection groups and environmental organisations.
- This is the case in France, where newly enacted legislation has considerably widened the availability and scope of collective actions but maintained the position that only authorised organisations or those fulfilling specified requirements may commence such claims.
- Similarly, in Spain and Belgium, group actions may only be brought by consumer associations or specific authorised legal entities.
Court authorisation may be needed before a collective action may be commenced.
- In some jurisdictions, such as Sweden, Thailand and Italy, a collective action must be commenced by one of the claimants acting as representative of the class as a whole.
- In others, such as South Africa and the UK, a proposed class representative may have to be approved by the court before they may take on that role.
In some jurisdictions, collective redress procedures are more a matter of court procedure than a separate action.
- Group litigation orders in the UK are a prime example of a case management process. Under this procedure, similar but separate claims are determined together, saving court time and expense and reducing the risk of conflicting judgments.
- In Luxembourg, individual claimants with similar but separate claims against the same defendant(s) may bring joint actions, with the courts taking a liberal view as to whether the connection between them is sufficient to warrant them being heard together.
Opt in or opt out?
Whether a collective action procedure is “opt in” or “opt out” is another area of divergence between jurisdictions. Most jurisdictions favour “opt in” procedures, with all claimants having actively to join the claim. But there are signs that “opt out” proceedings may be becoming more common.
- The judgment in Portuguese ação popular proceedings will generally bind all potential claimants except those who have formally opted out.
- The newly introduced representative action in Thailand is opt out only. Members of the class who do not opt out will be prohibited from bringing their own claim against the defendant.
- In Spain, would-be claimants may opt into collective proceedings and take an active part in them, although the result of the case will ultimately bind all those affected by the decision, whether they opted in or not.
- In the UK, collective redress for private damages actions in competition claims can be opt in or opt out, as determined by the court.
The funding of collective actions
The growing acceptance in many jurisdictions of third party funding as a recognised source of financial backing for claims is likely to fuel the growth of collective actions. However, authorities are also keen to ensure that this method of funding does not result in the pursuit of unmeritorious claims and its use is often subject to statutory limitations. For the same reason, few countries permit the use of contingency fees as a basis upon which lawyers may recover fees from parties involved in collective actions. It is likely that the funding and recovery of costs for collective actions will continue to be a controversial issue as the procedure becomes more widely available.
The encouragement of collective redress procedures to enable the enforcement of rights, particularly in the area of consumer law, has for many years been advocated by the European Commission. In June 2013 the Commission published a non-binding recommendation setting out principles for collective redress and inviting member states to introduce such mechanisms by June 2015. However, the response has been disappointing. The Commission has now published proposals for a European directive which would effectively introduce a European procedure for collective redress. Qualified entities would be able to bring representative actions on behalf of consumers to seek injunctions to prevent infringements of European law and/or for the redress of damage. Whether member states will accept the Commission’s proposals remains to be seen.
Collective redress terminology
- Class action – one or more claimants sue the same defendant(s) for similar or related loss or damage in a single action on behalf of a large group of potential claimants with defined characteristics. Individuals must usually “opt out” of the action to avoid being bound by the court’s decision. The most obvious example is class action litigation in the US.
- Group action – court proceedings are brought by a number of individual claimants concerning related or common issues and are heard together for case management reasons. Individuals usually have to “opt into” the action if they wish to take advantage of the court’s decision. This type of proceeding is available in the UK and Germany, for example.
- Representative action – court proceedings are brought on behalf of a number of individual claimants by a representative body, often a consumer organisation. These actions are permissible in a number of European jurisdictions, including France, Belgium, Spain and Poland. Sometimes the action must be commenced by one of the claimants acting as representative, as in Sweden, Thailand and Italy. The proposed class representative may have first to be approved by the court, as is the case in South Africa and the UK.
- Collective action – a generic term to mean any of these types of proceedings or any other proceeding which may be brought by or on behalf of a group of claimants.