Collective Redress across the globe
Collective redress procedures – that is, court proceedings 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 increasingly important in civil litigation.
The availability and effect of collective redress procedures differ widely between jurisdictions, with some countries embracing the concept and permitting collective actions in a large variety of claims, while in others the procedure may only be used in limited circumstances and for specified causes of action. What is clear, however, is that the impact of the Covid-19 pandemic is causing parties across the globe to consider how collective procedures might be used to bring claims for compensation in a number of different contexts. Other features of modern life, such as large-scale data breaches, are also likely to be met with collective claims. It is vital, therefore, that businesses with cross-border operations are aware of the differences in approach to dispute resolution – the potential risks and available opportunities – they may face across their global market.
Collective actions and the third party funding that backs them enable individuals to pursue cases that would individually be practically and economically unviable. They are therefore often seen as a “claimant friendly” procedure. However, this method of dispute resolution does have advantages for defendants too. If a large number of claims is inevitable, a method of dispute resolution has to be found: leaving good claims for compensation unsatisfied is not satisfactory from anyone’s perspective and carries real reputational implications. A collective redress procedure may also enable a defendant to pursue points of law – for example as to causation – which can be determined as a precedent for the class as a whole but which may not be realistic to pursue in an individual claim with limited sums at stake. Moreover, litigating a large number of individual claims is consuming of time and other resources and risks inconsistent decisions on points which may be of limited financial impact in a single case but which become very expensive when viewed across a class.
In addition, dealing with a large number of similar or related disputes has advantages for the judicial authority concerned, reducing court time, cost and the risk of inconsistent – and therefore appealed- decisions.
Collective redress terminology
- Class action – one or more claimants sues the same defendant(s) for similar or related loss or damage in a single action on behalf of a large group of 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 in to” 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 jurisdictions.
- 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.
Types of collective redress mechanism
The best-known example of collective redress in practice is probably the U.S. class actions procedure. This type of action is a sophisticated and highly developed procedure regularly used in the U.S., 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. However, any claimant considering a class action will generally first wish to explore whether there might be jurisdiction for their claim in the US because of the procedural and perceived other advantages that US litigation offers.
Although none fully embrace the US approach, 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. Some states restrict this by subject matter (for example the KapMuG in Germany, which works for capital markets disputes only) and others by nature of claim (for example in Belgium, where collective actions are 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 how the court manages its procedure than a specially constituted claim.
- 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. In an opt-out procedure, the litigation is brought on behalf of all members of the class even if they have not heard of, or have any active involvement in, the proceedings.
- 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, most collective proceedings are brought under a case management tool, the Group Litigation Order, which requires every claimant to commence their own action (so clearly an opt-in procedure). These are then dealt with together by the court. The representative action operates as a form of opt out litigation. A recent claim alleging a mass data breach was commenced under this procedure, with over four million affected individuals being represented in the action without them having to elect to join. The action for 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 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 was disappointing. The Commission therefore published its own 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.
On 22 June 2020, the text of a draft directive was agreed by negotiators from the European Council and Parliament. Following approval and publication in the EU’s Official Journal, which is expected this Autumn, the directive will oblige member states to introduce a harmonised model of representative actions providing redress for consumers, while also ensuring appropriate safeguards from abusive lawsuits.
The Directive is discussed in more detail in our chapter Collective redress in the European Union.