# EUR-Lex - 52013DC0401 - EN

*|*

# 52013DC0401

**COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS "Towards a European Horizontal Framework for Collective Redress" /* COM/2013/0401 final */**

			*

			*

COMMUNICATION FROM THE COMMISSION TO
THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL
COMMITTEE AND THE COMMITTEE OF THE REGIONS

"Towards a European Horizontal
Framework for Collective Redress"

1.           Introduction

1.1.        Objectives of this Communication

In economically challenging times, a sound
legal environment and efficient justice systems can contribute decisively to
the European Union’s goal of achieving competitive growth. The major policy
objective for the EU is to remain competitive at global level and to have an
open and functioning single market, as stressed in the Europe 2020 strategy and
in the Single Market Act. Legal certainty and a reliable legal environment are
of key importance in this context.

EU justice policy aims to develop a genuine
area of freedom, security and justice that serves citizens and businesses[1]. Both citizens and businesses should
be able to obtain effective redress, in particular in cross-border cases and in
cases where the rights conferred on them by European Union law have been infringed.
This may require procedural law solutions on the basis of EU law. Work carried
out in the area of procedural law so far has produced a number of solutions
facilitating effective redress: the European Small Claims Procedure[2] is a simplified and
cost-effective European civil procedure that facilitates consumer claims
resulting from cross-border sales. The European Order for Payment Procedure[3] contributes to fast
cross-border debt recovery, making it easier for businesses to manage their
claims. The Mediation Directive[4],
which is applicable in all cross-border civil disputes, promotes Alternative
Dispute Resolution that saves costs and efforts and reduces the time needed for
cross-border litigation. In the field of consumer policy[5] the recently adopted Directive
on consumer Alternative Dispute Resolution[6]
together with Regulation on consumer Online Dispute Resolution[7] go further by requiring Member
States to ensure that contractual disputes between a consumer and a trader arising
from the sale of goods or the provision of services can be submitted to an
alternative dispute resolution entity.

The above-mentioned legal instruments,
together with other instruments that go to make up the European Union’s acquis
in the area of justice and consumer protection, respond to very concrete and
well identified needs of citizens and businesses. In accordance with the
principle of subsidiarity, they leave room also for national judicial solutions
and redress systems.

Collective redress is one of the mechanisms
that has been analysed since several years by the EU institutions on the basis
of experience made in several Member States as to its capacity to contribute to
the development of the European area of justice to ensure a high level of consumer
protection and to improve the enforcement of the EU law in general, including
the EU's competition rules, while serving economic growth and facilitating
access to justice. The Commission has continued and deepened this analysis
between 2010 and 2012 to provide answers to three basic questions:

(1) what is the problem that is not yet
satisfactorily addressed by existing instruments,

(2) could a particular legal mechanism,
such as a possible European collective redress mechanism, solve this problem?

(3) how could such a mechanism be
reconciled with the requirement of Article 67(1) TFEU, according to which the
Union, while establishing a European area of freedom, justice and security, is
asked to respect the different legal systems and traditions of the Member
States, in particular in areas (such as procedural law) which are well
established at national level while being rather new at EU level.

For the Commission, any measures for
judicial redress need to be appropriate and effective and bring balanced solutions
supporting European growth, while ensuring effective access to justice.
Therefore, they must not attract abusive litigation or have effects detrimental
to respondents regardless of the results of the proceedings. Examples of such
adverse effects can be seen in particular in ‘class actions’ as known in the United States. The European approach to collective redress must thus give proper thought to
preventing these negative effects and devising adequate safeguards against
them.

In 2011, the Commission carried out a
horizontal public consultation ‘Towards a coherent European approach to
collective redress’. Its aim was, inter alia, to identify common legal
principles on collective redress and to examine how such common principles
could fit into the EU legal system and into the legal orders of the 27 EU
Member States. The consultation also explored the areas in which different
forms of collective redress could help to better enforce EU legislation or
protect the rights of EU citizens and businesses.

The European Parliament decided to provide
its input to the European debate by adopting a resolution based on a
comprehensive own-initiative report on collective redress[8].

This Communication reports the main views
expressed in the public consultation and reflects the position of the
Commission on some central issues regarding collective redress. It is
accompanied by a Commission Recommendation, which recommends that all Member
States of the European Union have national collective redress systems based on
a number of common European principles. The Recommendation advocates a
horizontal approach, and its content therefore also applies to the field of
competition law, an area for which specific rules – justified by the
specificities of competition law – are included in a proposal for a Directive
on certain rules governing actions for damages under national law for
infringements of the competition law provisions of the Member States and of the
European Union[9].
While the Recommendation encourages all Member States to follow the principles
suggested therein, the proposed Directive leaves it to Member States whether or
not to introduce collective redress actions in the context of the private
enforcement of competition law.[10]

1.2.        What is collective
redress?

Collective redress is a procedural
mechanism that allows, for reasons of procedural economy and/or efficiency of
enforcement, many similar legal claims to be bundled into a single court
action. Collective redress facilitates access to justice in particular in cases
where the individual damage is so low that potential claimants would not think
it worth pursuing an individual claim. It also strengthens the negotiating
power of potential claimants and contributes to the efficient administration of
justice, by avoiding numerous proceedings concerning claims resulting from the
same infringement of law.

Depending on the type of claim, collective
redress can take the form of injunctive relief, where cessation of the unlawful
practice is sought, or compensatory relief, aimed at obtaining
compensation for damage suffered. This Communication and the Commission Recommendation
accompanying this Communication address both forms of collective redress,
without interfering with means of injunctive relief already in place in Member
States on the basis of Union law.

It is indeed important to bear in mind that
actions seeking injunctions or damages for alleged violations of different
rights or cessation of unlawful practice are civil disputes between two private
parties[11],
including when one party is a ‘collective’, e.g. a group of claimants. Any
violation of rights and any consequent injunction or compensation for damage is
determined only at the time of the court decision[12] in the case[13]. In line with the principle of
the rule of law, the defending party (respondent) to the civil litigation is
not considered as having acted improperly or violated any rights unless and
until this is ruled by the court[14].

1.3.        State of play on
collective redress in the European Union

EU legislation and international agreements
ratified by the EU require Member States to provide for collective injunctive
relief in certain areas. In the area of consumer law, as a result of the
Directive on Injunctions[15],
qualified consumer protection authorities and consumer organisations are
authorised to commence proceedings before the courts or public authorities in
all Member States to request the prohibition of practices that infringe
national and EU consumer protection rules. In the area of environmental law,
the Aarhus Convention requires Member States to ensure access to justice with
regard to infringements of environmental standards[16]. All Member States thus have
procedures in place which allow claimant parties, acting in a collective or
representative way, to seek an injunction to stop illegal practices.

Procedures to bring collective claims for compensatory
relief have been introduced also in a number of Member States, so far as a
result of national developments in justice policy. Instruments on collective
compensatory relief do not yet exist at EU level. Existing mechanisms whereby compensation
can be claimed by a group of individuals harmed by illegal business practices
vary between the Member States[17].
Major differences in the mechanisms have to do with their scope, their availability
to representative organisations or individuals as claimants, their availability
to businesses and in particular SMEs, how the claimants group is formed (‘opt-in’
or ‘opt-out’), how an action is financed and how an award is distributed.

The Commission has worked for several years
to develop European standards of compensatory collective redress in the field
of competition and consumer law. It adopted a Green Paper on antitrust actions
in 2005[18]
and a White Paper in 2008[19],
examining the idea of integrating collective redress as a further instrument for
the enforcement of EU competition rules by private parties. In 2008, the
Commission also published a Green Paper on consumer collective redress[20].

Stakeholders raised the issue of
inconsistencies between the different Commission initiatives on collective
redress, a fact which points to the need for a more coherent system. Indeed, collective
redress is a procedural tool that can be relevant for EU policies in areas
other than competition or consumer protection. Good examples are financial
services, environmental protection, data protection[21] or non-discrimination. The
Commission therefore deems it necessary to increase policy coherence and to
take a horizontal approach on collective redress on the basis of a public
consultation carried out in 2011[22].

2.           Main
outcomes of the public consultation

2.1.        Stakeholders’ contributions

The Commission's public consultation on
collective redress met with a considerable response: 310 replies were received from
other stakeholders, and 300 people attended a public hearing on 5 April 2011.
In addition, over 19 000 replies were received in the form of mass mailing from citizens[23]. The quality of most responses
demonstrates the substantial interest in and the importance of this issue. The
contributions informed the Commission’s understanding of the varying positions
taken by stakeholders, and highlighted which issues are controversial and which
are more consensual.

The primary difference of opinion
concerning the benefits that could flow from introducing new mechanisms of
collective redress for the enforcement of EU law is between citizens/consumers
and business: consumers are generally in favour of introducing new mechanisms,
while businesses are generally against. Academics are generally in favour.
Lawyers are divided on this issue, although those who are sceptical or opposed
outnumber those in favour.

The Member States[24] which responded to the
consultation also expressed diverging views, ranging from support for binding
EU rules on collective redress to strong scepticism.

Some Member States would consider binding
EU rules with regard to specific policy fields or issues only (Denmark – with
regard to cross-border collective redress, the Netherlands– with regard to
private international law aspects of collective redress, Sweden – in policy
fields with harmonised substantive rules, such as competition, the UK - in the
competition field; Latvia would consider a set of binding minimum requirements
in the area of consumer and competition law for cross-border cases).

Several contributors, representing various
categories of stakeholders, took the view that collective redress as a form of
private enforcement should normally be independent of enforcement by public
bodies, but that a certain level of coordination is required between public and
private enforcement; in effect they should complement each other. Some
contributors argued that collective redress should only come into play after
public enforcement, as "follow on" actions.

Most stakeholders agree that establishing
common principles for collective redress at EU level is desirable. However,
such principles should fit into the EU legal system and the legal orders of the
27 Member States, and take into account the practical experience of collective
redress systems already operating in several Member States. According to many stakeholders,
the principles should ensure effective proceedings, prevent threats of abusive
litigation, encourage collective consensual resolution of disputes, and provide
a mechanism for the cross-border enforcement of judgments.

More specifically, many stakeholders agree
with the following basic parameters of a collective redress system in terms of
effectiveness and safeguards: any collective redress mechanism should first and
foremost be capable of effectively resolving a large number of individual
claims that raise the same or common issues and relate to a single alleged
infringement of rights granted under EU law. It should be capable of delivering
legally certain and fair outcomes within a reasonable timeframe, while
respecting the rights of all parties involved. At the same time, it should incorporate
safeguards against abusive litigation and avoid any economic incentives to
bring speculative claims. In examining the concrete building blocks needed to
ensure effectiveness and safeguards, the public consultation has confirmed that
collective redress mechanisms vary significantly amongst Member States. These
mechanisms differ from each other as regards the type of available collective
action and its main features, such as admissibility, legal standing, the use of
an opt-in or an opt-out system, the role of the judge in collective proceedings
and requirements on informing potential claimants about a collective action. Furthermore,
each collective redress mechanism operates in the broader context of general
civil and procedural rules, rules regulating the legal profession and other
relevant rules, which also differ amongst Member States. Given this diversity,
stakeholders naturally have very different views as to whether any specific national
system of collective redress — or its features — may be particularly
instructive when formulating EU-wide standards on effectiveness and safeguards.

2.2.        Potential
advantages and disadvantages of collective redress according to the public
consultation

In numerous
responses, various stakeholders pointed out the inherent advantages and
disadvantages of collective redress mechanisms. These potential advantages and
disadvantages are to be viewed in the context of the values and policies of the
European Union, in particular as expressed in the Treaties and legislation. Advantages
can be achieved and the disadvantages can be mitigated if the common principles
to be followed under the Commission Recommendation are appropriately
implemented.

2.2.1.     Advantages: access to justice and stronger enforcement

Under Article 47(1) of the Charter of
Fundamental Rights, everyone whose rights and freedoms guaranteed by the law of
the Union are violated has the right to an effective remedy before a tribunal.
Effectiveness of the remedy depends on various factors, including practical
accessibility to the remedy offered by the legal system.

The European Council emphasised in the
Stockholm Programme that access to justice in the European judicial area should
be made easier, particularly in cross-border proceedings. One obstacle to
access to justice can be the cost of judicial proceedings. Where a large number
of persons claim to be harmed by an alleged infringement of rights granted
under EU law but the potential loss of each individual is small in comparison
to the potential costs for each claimant, the pooling of similar claims in a
collective redress scheme allows persons claiming damages to share the costs,
thereby reducing the financial burden on individual claimants. The possibility
of collectively bringing an action encourages more persons who have been
potentially harmed to pursue their rights for compensation[25]. The availability of
collective court action in national legal systems — together with the
availability of collective consensual dispute resolution methods — may
therefore contribute to improving access to justice.

In addition, when potential claimants can
enforce their rights granted under EU law against possible violators more
effectively, this contributes to the overall level of enforcement of EU law. In
policy areas where the designated public authorities have powers to enforce the
rules in the public interest, public and private enforcement are complementary:
while the former is aimed at prevention, detection and deterrence of
infringements, the latter aims to secure compensation for victims. In policy
areas with weaker public enforcement, collective actions may, besides their
compensatory or preventive function, also serve a deterrence function.

2.2.2.     Disadvantage: risk of abusive
litigation

The main concerns voiced against the
introduction of collective judicial redress mechanisms were that it would
attract abusive litigation or otherwise have a negative impact on the economic
activities of EU businesses[26].
Litigation can be considered abusive when it is intentionally targeted against
law-abiding businesses in order to cause reputational damage or to inflict an
undue financial burden on them.

There is the risk that the mere allegation
of infringements could have a negative influence on the perception of the
defendant by its existing or potential clients. Law-abiding defendants may be
prone to settle the case only in order to prevent or minimise possible damage.
Furthermore, the costs of legal representation in a complex case may constitute
substantial expenditure, in particular for smaller economic operators.

‘Class actions’ in the US legal system are
the best known example of a form of collective redress but also an illustration
of the vulnerability of a system to abusive litigation. Several features of the
  US legal system have made class actions a particularly powerful instrument
that is, however, feared by those on the defending side, namely trade and
industry as it can be used as a forceful tool to compel them to settle a case,
which may not necessarily be well-founded. Such features are for instance
contingency fees of attorneys or the discovery of documents procedure that allows
‘fishing expeditions’. A further important feature of the US legal system is the possibility to seek punitive damages, which increases the economic interests at
stake in class actions. This is enhanced by the fact that US class actions are
legally ‘opt-out’ procedures in most cases: the representative of the class can
sue on behalf of the whole class of claimants possibly affected without them
specifically requesting to participate. In recent years, U.S. Supreme Court
decisions have started to progressively limit the availability of class actions
in view of the detrimental economic and legal effects of a system that is open
to abuse by frivolous litigation.

2.3.        The 2012 Resolution of the
European Parliament

The European Parliament's resolution ‘Towards
a Coherent European Approach to Collective Redress’ of 2 February 2012[27] takes well note of the widely
divergent opinions of stakeholders expressed on the issue of collective
redress.

The European Parliament welcomes the
Commission's work towards a coherent European approach to collective request
stressing that "victims of unlawful practices – citizens and companies
alike – must be able to claim compensation for their individual loss or damage
suffered, in particular in the case of scattered and dispersed damages, where
the cost risk might not be proportionate to the damages suffered".[28] Moreover, it underlines
"the possible benefits of collective judicial actions in terms of lower
costs and greater legal certainty for claimants, defendants and the judicial
system alike by avoiding parallel litigation of similar claims"[29].

However, the Parliament also calls on the
Commission to first of all carry out a thorough impact assessment before any
further regulatory action is undertaken.[30]
According to the European Parliament, the Commission should demonstrate in this
impact assessment "that, pursuant to the principle of subsidiarity, action
is needed at EU level in order to improve the current EU regulatory framework
so as to allow victims of infringements of EU law to be compensated for the
damage they sustain and thus to contribute to consumer confidence and smoother
functioning of the internal market." The European Parliament also recalls
"that, currently, only Member States legislate on national rules
quantifying the amount of compensation that can be awarded".[31] The European Parliament
furthermore calls on the Commission "to examine thoroughly the appropriate
legal basis for any measure in the field of collective redress"[32].

The European Parliament concludes by
calling "in the event that is decided after detailed consideration that a
Union scheme of collective redress is needed and desirable", for any
proposal in the field of collective redress to take the form of a horizontal
framework including a common set of principles providing uniform access to
justice via collective redress within the EU and specifically but not
exclusively dealing with the infringement of consumer rights."[33] The Parliament also stresses
"the need to take due account of the legal traditions and legal orders of
the individual Member States and enhance the coordination of good practices
between Member States"[34].

As regards the scope of the possible
horizontal framework on collective redress, the European Parliament finds that EU
action would deliver most benefit in cross-border cases and in cases involving
infringements of EU law.

The Parliament also finds that the European
rules of private international law should apply to collective
actions in general; however, the horizontal framework itself should lay down
rules to prevent forum shopping. It points to the need to examine conflict of
law rules.

Furthermore, the European Parliament raises
several issues concerning specific features of collective redress. It supports
the ‘opt-in’ principle as the only appropriate European approach to collective
redress. Legal standing should be given to representative organisations that
should be qualified in advance. Punitive damages should be clearly prohibited
and full compensation should reach individuals once the court confirms that
they are right in their claims.

It stresses that one way of fighting
abusive litigation is to exclude certain features from the scope of the horizontal
framework, in particular punitive damages, third-party financing of collective
redress and contingency fees for lawyers. As one of the central safeguards
against abusive litigation, the European Parliament points out that the ‘loser
pays’ principle usually prevailing in civil disputes should apply also in collective
cases. The European Parliament is not in favour of setting out conditions or
guidelines for the private funding of damages claims at EU level.

3.           Aspects of a European Horizontal Framework on collective
redress

Careful analysis of the views and arguments
put forward during the public consultation, and notably of the position of the
European Parliament, together with the expertise gathered by the Commission in the
course of previous activities in the area of consumer protection and
competition, makes it possible to identify the main issues that must be
addressed in a coherent manner in a European horizontal framework on collective
redress.

In particular, it is common ground that any
European approach should:

–
be capable of effectively resolving a large
number of individual claims for compensation of damage, thereby promoting
procedural economy;

–
be capable of delivering legally certain and
fair outcomes within a reasonable timeframe, while respecting the rights of all
parties involved;

–
provide for robust safeguards against abusive
litigation; and

–
avoid any economic incentives to bring
speculative claims.

3.1.        The relationship between public enforcement and private
collective redress — compensation as an object of collective action

There is a consensus among stakeholders
that private and public enforcement are two different means that should normally
pursue different objectives. Whereas it is the core task of public enforcement
to apply EU law in the public interest and impose sanctions on infringers to
punish them and to deter them from committing future infringements, private
collective redress is seen primarily as an instrument to provide those affected
by infringements with access to justice and — as far as compensatory collective
redress is concerned — possibility to claim compensation for harm suffered. In
this sense, public enforcement and private collective redress are seen as
complementing each other.

Collective damages actions should aim to
secure compensation of damage that is found to be caused by an infringement.
The punishment and deterrence functions should be exercised by public
enforcement. There is no need for EU initiatives on collective redress to go
beyond the goal of compensation: Punitive damages should not be part of a European
collective redress system.

3.2.        Admissibility of collective
redress

Conditions for the admissibility of
collective actions vary in Member States depending on the concrete type of
collective redress mechanism. Typically, the basic conditions are set by the law
regulating a given type of collective action. There are also systems leaving
the assessment of admissibility to the discretion of the courts. The extent of
discretion given to the court to decide on admissibility conditions varies
between Member States, also when the legal conditions are codified in a law.

Some collective actions are available for
all types of civil damages claims; others are only available for claims
concerning damages for alleged breaches of specific legal rules: consumer
protection rules, environmental protection, investor protection, competition
law, etc. There are also systems in which particular types of collective action
are only admissible once a public authority has established an infringement of
the relevant rules: i.e. follow-on actions[35].

It should be ensured that collective actions
for damages (compensatory relief) can only be brought when certain
admissibility conditions are fulfilled. In any event, the court should decide
on the admissibility of a concrete collective action at a very early stage of
the proceedings.

3.3.        Legal standing

Legal standing to bring a collective action
in the Member States depends on the concrete type of collective redress
mechanism. In certain types of collective actions, such as group actions where
the action can be brought jointly by those who claim to have suffered harm, the
issue of standing is fairly straightforward. In the context of representative
actions, the issue of legal standing needs to be defined. A representative
damages action is an action which is brought by a representative entity (which
in some systems can also be a public authority) on behalf of a defined group of
individuals or legal persons who claim to have been harmed by the same alleged
infringement. The individuals are not parties to the proceeding; only the
representative entity acts on the claimant side. It should therefore be ensured
that the representative entity acts genuinely in the best interest of the group
represented, and not for own profit. The Commission believes that under a
European horizontal framework on collective redress it is desirable that
collective actions are available in all Member States to natural or legal
persons as a means of collectively asking for injunctions or claiming
compensation for harm caused to them by infringements of rights granted under
EU law.

There are different systems as regards
qualifying criteria for representative entities which are not public
authorities. One possible approach is to let the court check whether the
representative entity is fit for purpose on a case-by-case basis (ad hoc
certification). Another approach is to set certain qualification criteria by
law and, thus, define the standing upfront. It can be left to the court to
check whether such qualification criteria are met, or an authorisation system
can be introduced where a public authority is in charge of checking the
fulfilment of qualification criteria. Mass harm situations could span across
the border, especially in the context of a further developed digital single
market, therefore representative entities originating from other Member States
than the one where a collective action is brought before the court should have
the possibility to continue performing their role.

Whereas some stakeholders, in particular
businesses, are strongly in favour of granting the standing to bring
representative actions only to qualified entities that fulfil express criteria,
other stakeholders are opposed to determining standing by law, arguing that this
might unnecessarily restrict access to litigation seeking compensation for all
those who have potentially suffered harm. The Commission considers it desirable
to define the conditions for legal standing in representative actions in the
Commission Recommendation.[36]

3.4.        ‘Opt-in’ vs. ‘opt-out’

There are two basic approaches to the way
in which the represented group is composed: ‘opt-in’, where the group includes
only those individuals or legal persons who actively opt in to become part of
the represented group, and opt-out’, where the group is composed of all
individuals who belong to the defined group and claim to have been harmed by
the same or similar infringement unless they actively opt out of the group. In
the ‘opt-in’ model, the judgment is binding on those who opted in, while all
other individuals potentially harmed by the same or similar infringement remain
free to pursue their damages claims individually. Conversely, in the ‘opt-out’
model, the judgment is binding on all individuals that belong to the defined
group except for those who explicitly opted out. The ‘opt-in’ model is used by most
Member States that provide for collective redress. The ‘opt-out’ model is used
in Portugal, Bulgaria and the Netherlands (in collective settlements) as well
as in Denmark in clearly defined consumer cases brought as representative
actions[37].

A significant number of stakeholders, in
particular businesses, strongly oppose the ‘opt-out’ model, arguing that it is more
prone to abuse and that it may be unconstitutional in some Member States, or at
least incompatible with their legal traditions. On the other hand, some
consumer organisations argue that ‘opt-in’ systems may fail to deliver
effective access to justice for all consumers who have been harmed[38]. In their view, the availability of ‘opt-out’ is therefore
desirable, at least as an option in appropriate cases and subject to approval
by the court.

In the Commission's view, it should be ensured
that the represented group is clearly defined so as to allow the court to
conduct the proceedings in a manner consistent with the rights of all parties,
and in particular with the rights of the defence.

The ‘opt-in’ system respects the right of a
person to decide whether to participate or not. It therefore better preserves
the autonomy of parties to choose whether to take part in the litigation or
not. In this system the value of the collective dispute is more easily
determined, since it would consist of the sum of all individual claims. The
court is in a better position to assess both the merits of the case and the
admissibility of the collective action. The ‘opt-in’ system also guarantees
that the judgment will not bind other potentially qualified claimants who did
not join.

The ‘opt-out’ system gives rise to more
fundamental questions as to the freedom of potential claimants to decide whether
they want to litigate. The right to an effective remedy cannot be interpreted
in a way that prevents people from making (informed) decisions on whether they wish
to claim damages or not. In addition, an ‘opt-out’ system may not be consistent
with the central aim of collective redress, which is to obtain compensation for
harm suffered, since such persons are not identified, and so the award will not
be distributed to them.

The Commission therefore takes the view in
the Commission Recommendation that under the European horizontal framework on collective
redress the claimant party should be formed on the basis of the ‘opt-in’ method
and that any exception to this principle, by law or by court order, should be
duly justified by reasons of sound administration of justice.

3.5.        Effective provision of
information to potential claimants

Effective information on collective action
is a vital condition for ensuring that those who could claim to have been
harmed by the same or similar alleged infringement learn of the possibility to
join a representative action or a group action and, thus, can make use of this
means of accessing justice. On the other hand, it cannot be overlooked that
advertising (e.g. on TV or via flyers) of the intention to bring collective
action may have a negative impact on the reputation of the defendant, which
could have adverse effects on its economic standing.

There is a consensus among stakeholders on
the importance of rules stipulating that a representative entity has an
obligation to effectively inform potential members of the represented group.
Many stakeholders suggest that the court should play an active role in checking
that this obligation is fulfilled.

For any type of collective action, any
rules regarding the provision of information to potential claimants should
balance concerns regarding freedom of expression and the right to access
information with the protection of the reputation of the defendant. The timing
and conditions in which the information is provided will play an important role
in ensuring that this balance is kept.

3.6.        Interplay of collective
redress and public enforcement in specific policy areas

With regard to EU policy fields where
public enforcement plays a major role — such as competition, environment, data
protection or financial services — most stakeholders see the need for specific
rules to regulate the interplay between private and public enforcement, and
protect the effectiveness of the latter[39].

Collective damages actions in regulated
policy areas typically follow on from infringement decisions adopted by public
authorities and rely on the finding of an infringement, which is often binding on
the civil court before which a collective damages action is brought. For
example, in the competition field, Regulation (EC) No 1/2003 provides that when
national courts rule on issues concerning EU antitrust rules which are already
the subject of a Commission decision, they cannot take decisions running
counter to the decision adopted by the Commission.

In such cases, follow-on actions
essentially concern the questions of whether damage has been caused by the
infringement and, if so, to whom and in what amount.

It is necessary to ensure that the
effectiveness of public enforcement is not put into jeopardy as a result of
collective damages actions or actions that are brought before courts while an
investigation by a public authority is still on-going. This may typically
require rules regulating access by claimants to documents obtained or produced
by the public authority in the course of the investigation, or specific rules
on limitation periods allowing potential claimants to wait with a collective
action until the public authority takes its decision as regards infringement.
Beyond the purpose of protecting public enforcement, rules of this kind also facilitate
effective and efficient redress through collective damages actions. Namely, the
claimants in a follow-on action can to a significant extent rely on the results
of public enforcement and, thus, avoid the (re-)litigation of certain issues.
Due account should be taken of the specificities of collective damages actions
in policy areas where public enforcement plays a major role, to achieve the
twofold goal of protecting the effectiveness of public enforcement and
facilitating effective private collective redress, particularly in the form of
follow-on collective actions.

3.7.        Effective
enforcement in cross-border collective actions through private international
law rules

The general principles of European
international private law require that a collective dispute with cross-border implications
should be heard by a competent court on the basis of European rules on
jurisdiction, including those providing for a choice of court, in order to
avoid forum shopping. The rules on European civil procedural law and applicable
law should work efficiently in practice to ensure proper coordination of
national collective redress procedures in cross-border cases.

With regard to jurisdictional rules, many
stakeholders asked for collective proceedings to be specifically addressed at
European level. Views differ, however, as to the desirable connecting factor
between the court and the case. A first group of stakeholders advocate a new
rule giving jurisdiction in mass claim situations to the court where the
majority of parties who claim to have been injured are domiciled and/or an
extension of the jurisdiction for consumer contracts to representative entities
bringing a collective claim. A second category argues that jurisdiction at the
place of the defendant’s domicile is best suited since it is easily
identifiable and ensures legal certainty. A third category suggests creating a
special judicial panel for cross-border collective actions with the Court of
Justice of the European Union.

In this respect, the Commission considers
that the existing rules of Regulation (EC) No 44/2001 on jurisdiction,
recognition and enforcement of judgments in civil and commercial matters (‘the
Brussels I Regulation’)[40], should be fully exploited. In the light of further experience
involving cross-border cases, the report foreseen on the application of the
Brussels I Regulation should include the subject of effective enforcement in
cross-border collective actions.

Finally, some stakeholders raised the
problem that, under the EU’s current conflict of law rules[41], a court to which a collective dispute is submitted in a case
involving claimants from several Member States would sometimes have to apply
several different laws to the substance of the claim. The general rule for tort
cases is that the law applicable for the obligations arising out of tort is the
law of the country in which the event giving rise to the damage occurred. In
tort cases concerning product liability, the law is determined by the habitual
residence of the person sustaining the damage. Furthermore, for cases on unfair
competition, the law applicable is the law of the country where competitive
relations or the collective interests of consumers are or are likely to be
affected. Admittedly, there can be situations where the conflict of law rules
can render cross-border litigation complex, in particular if the court has to
apply several compensation laws to each group of persons sustaining the damage.
However, the Commission is not so far persuaded that it would be appropriate to
introduce a specific rule for collective claims which would require the court
to apply a single law to a case. This could lead to uncertainty when this is
not the law of the country of the person claiming damages.

3.8.        Availability
of collective consensual dispute resolution

Stakeholders agree that consensual dispute
resolution can provide parties with a fast, low-cost and simple means of
resolving their disputes. Consensual dispute resolution can also reduce the
need to seek judicial redress. Parties to collective proceedings should
therefore have the possibility to resolve their disputes collectively out of court,
either with the intervention of a third party (e.g. using a mechanism such as
arbitration or mediation) or without such intervention (e.g. settlement among
the parties concerned).

The large majority of stakeholders including
small and medium enterprises (SMEs) are of the opinion that the consensual
collective resolution of disputes should not be a mandatory first step before
going to court. Indeed, this approach could trigger unnecessary costs and
delays and may in certain situations even undermine the fundamental right of
access to justice[42]. Resorting to the consensual collective resolution of disputes
should therefore remain voluntary , with due regard to existing EU law in the
ADR area. However, judges in collective redress proceedings should not be
prevented from inviting the parties to seek a consensual collective resolution
of their dispute[43].

Verification of the legality of the outcome
of consensual collective resolution of the dispute and its enforceability is of
particular importance in collective cases, as not all members of the group
claiming to be harmed by an alleged illegal practice are always able to
directly take part in the consensual collective resolution of the dispute. The
court should therefore confirm the outcome. The Commission recommends this to
the Member States.[44]

The Commission sees therefore that a useful
complementary role can be played by consensual dispute resolution mechanisms.
Building on the steps that have already taken in this direction, namely the
Mediation Directive, Directives on consumer Alternative Dispute Resolution and
Regulation on consumer Online Dispute Resolution, the Commission considers that
it is a useful further step to recommend to the Member States to develop collective
consensual dispute resolution mechanisms[45].

3.9.        Funding of collective
action

In the case of collective redress, costs[46] usually borne by parties engaged in civil litigation could be
relatively high, in particular where there are many claimants. While lack of
funding should not limit access to justice[47],
funding mechanisms available for collective actions should not create incentives
for abusive litigation.

3.9.1.     Third-party financing

Financial support by a private third party who
is not a party to the proceedings could take different forms. Direct third-party
financing of collective actions is seen as a potential factor driving abusive
litigation, unless it is properly regulated. Legal expenses insurance is
perceived by some as more neutral and ‘after-the-event’ insurance could have
some relevance for collective actions.

Contingency or success fees for legal
services that cover not only representation, but also preparatory action,
gathering evidence and general case management constitute de facto
third-party financing. The variety of the solutions adopted in this sphere by
the Member States ranges from prohibition to acceptance. Some stakeholders
consider the abolition of contingency fees as an important safeguard against
abusive litigation while others see contingency fees as a useful method of
financing collective actions.

Third-party financing is an area which
needs to be designed in a way that it serves in a proportionate manner the
objective of ensuring access to justice. The Commission therefore takes the
view in the Commission Recommendation that it should be made subject to certain
conditions. An inappropriate and non-transparent system of third party financing
runs the risk of stimulating abusive litigation or litigation that does little
to serve the best interests of litigants.

3.9.2.     Public funding

In the public consultation some stakeholders,
namely consumer organisations and some lawyers, favoured the creation of public
funds that would provide financial support for potential claimants in
collective redress cases.

However, given that collective redress would
be a procedure arising in the context of a civil dispute between two parties,
even if one of them is composed of a number of claimants, and deterrence will
be a side-effect of the proceedings, the Commission does not find it necessary
to recommend direct support from public funds, since if the court finds that damage
has been sustained, the party suffering that damage will obtain compensation
from the losing party, including their legal costs.

3.9.3.     ‘Loser pays’ principle

The principle that the losing party should
bear the costs of the court proceedings is well embedded in the European legal
tradition, although it is not present in every jurisdiction of the European
Union and the way in which it is applied differs between jurisdictions.

In the public consultation all stakeholders
agreed that the ‘loser pays’ principle should apply to collective redress
cases. The Commission has no doubt that the ‘loser pays’ principle should form
part of the European approach to collective redress, and thus it recommends to
follow that principle in collective actions.[48]

4.           Conclusions

The Commission's public consultation in
2011, the European Parliament Resolution of 2 February 2012 and the
Commission’s own analyses have made it possible to identify particular issues
to be addressed in developing a European horizontal framework for collective
redress. As a principal conclusion the Commission sees the advantage of
following a horizontal approach in order to avoid the risk of uncoordinated
sectorial EU initiatives and to ensure the smoothest interface with national
procedural rules, in the interest of the functioning of the internal market.

Taking into account the complexity on the
one hand and the need to ensure a coherent approach to collective redress on
the other hand, the Commission adopts, in parallel with this Communication, a
Recommendation on the basis of Article 292 TFEU that suggests horizontal
common principles of collective redress in the European Union that should be
complied with by all Member States. After adoption and publication of the
Commission Recommendation, the Member States should be given two years to
implement the principles recommended by the Recommendation in national
collective redress systems. On the basis of practical experience to be made
with the Recommendation, the Commission will, four years after the publication
of the Recommendation, assess whether further legislative measures to
consolidate and strengthen the horizontal approach reflected in the present
Communication and in the Recommendation should be proposed. The Commission will
in particular assess the implementation of the Recommendation and its impact on
access to justice, on the right to obtain compensation, on the need prevent
abusive litigation and on the functioning of the single market, the economy of
the European Union and consumer trust.

[1]               See the Commission's Communication "Action Plan
Implementing the Stockholm Programme" COM (2010) 171 20.4.2010. See
Stockholm Programme — An open and secure Europe serving and protecting
citizens, adopted by the European Council on 9.12.2009, OJ C 115, 4.5.2010,
p.1.

[2]               Regulation (EC) No 861/2007 establishing a European
Small Claims Procedure, OJ L 199, 31.7.2007.

[3]               Regulation (EC) No 1896/2006 creating a European
Order for payment procedure, OJ L 399, 30.12.2006.

[4]               Directive 2008/52/EC on certain aspects of mediation
in civil and commercial matters, OJ L 136, 24.5.2008.

[5]               Communication from the c-Commission to the Council,
the European Parliament and the European Economic and Social Committee,
"EU Consumer Policy strategy 2007-2013 Empowering consumers, enhancing
their welfare, effectively protecting them", COM(2007)99final, {SEC(2007)321},
{SEC(2007)322}, {SEC(2007)323}, 13.03.2007 and Communication from the
Commission to the European Parliament, the Council, the Economic and Social
Committee and the Committee of the Regions "A European Consumer Agenda -
Boosting confidence and growth", COM(2012)225final,{SWD(2012) 132 final},
22.05.2012.

[6]               P7_TA(2013)0066 Alternative consumer dispute
resolution, Committee on the Internal Market and Consumer Protection PE487.749
European Parliament legislative resolution of 12 March 2013 on the proposal for
a directive of the European Parliament and of the Council on alternative
dispute resolution for consumer disputes and amending Regulation (EC) No
2006/2004 and Directive 2009/22/EC (Directive on consumer ADR) (COM(2011)0793 –
C7-0454/2011– 2011/0373(COD)).

[7]               P7_TA(2013)0065 Online consumer dispute resolution,
Committee on the Internal Market and Consumer Protection PE487.752 European
Parliament legislative resolution of 12 March 2013 on the proposal for a
regulation of the European Parliament and of the Council on online dispute
resolution for consumer disputes (Regulation on consumer ODR) (COM(2011)0794 –
C7-0453/2011– 2011/0374(COD)) (Ordinary legislative procedure: first reading)

[8]               European Parliament resolution of 2 February 2012 "Towards
a Coherent European Approach to Collective Redress".

[9]               [ADD reference
COM(2013)XXX when known]

[10]             For the Commission, the horizontal Recommendation and
the sector-specific Directive are a "package" that, seen as a whole,
reflects a balanced approach deliberately chosen by the Commission. While the
adoption procedures differ for both measures under the Treaties, significant
changes to this balanced approach would require the Commission to reconsider
its proposal.

[11]             Also a public authority could be a claimant or defendant
in civil disputes when it is not exercising its public power but acting under
civil law.

[12]             Unless it is a ‘follow-on’ damages action that requires
the prior finding of an infringement by a competent public authority, such as a
competition authority.

[13]             For this reason, it is not appropriate to refer to ‘victims’,
‘harm’ or ‘infringements’ in the context of private collective actions before
the court decides that damage has been caused by a particular violation of the law.

[14]             Research carried out in Germany showed that around 60 %
of (injunctive) actions brought by consumer protection authorities or
associations were successful in a given time period. This percentage is high because
the claimants select the cases carefully. Nevertheless, in 40 % of the
cases no violation or illegal activity was found by the court. See Meller-Hannich: Effektivität kollektiver Rechtschutzinstrumente,
2010.

[15]             Directive 2009/22/EC, OJ L 110, 1.5.2009, p. 30.

[16]             The Member States have implemented this by giving
non-governmental organisations standing to challenge administrative decisions in
environmental matters before the courts.

[17]             See e.g. the 2008 study ‘Evaluation of the
effectiveness and efficiency of collective redress mechanisms in the European
Union’ requested by the Commission and available at http://ec.europa.eu/consumers/redress_cons/collective_redress_en.htm#Studies.

[18]             COM(2005)672, 19.12.2005.

[19]             COM(2008)165, 2.4.2008.

[20]             COM(2008)794, 27.11.2008.

[21]             A form of representative collective redress has been
proposed by the Commission in its proposal for a Regulation on the protection
of individuals with regard to the processing of personal data and on the free
movement of such data (General Data Protection Regulation). Here, the judicial
remedy for data protection violations could be exercised by any body,
organisation or association which aims to protect data subjects’ rights and
interests concerning the protection of their personal data, if they act on
behalf of one or more data subjects (see COM(2012)11,
25.1.2012, Articles 73(2) and 76). In these cases, the action is thus brought on behalf of the
represented data subject and only goes as far as the data subject
himself/herself would be entitled to bring an action.

[22]             COM(2010)135, 31.3.2010.

[23]             Almost all were uniform responses from French and
German citizens.

[24]             15 Member States responded to the public consultation
(AT, BG, CZ, DE, DK, EL, FR, HU, IT, LV, NL, PL, PT, SE, UK).

[25]             According to a 2011 Eurobarometer survey, 79 % of those
polled in the 27 Member States stated that they would be more willing to defend
their rights in court if they could join with other consumers. Flash
Eurobarometer ‘Consumer attitudes towards cross-border trade and consumer
protection’, March 2011.

[26]             Opinion expressed by the majority of all stakeholders,
in particular businesses.

[27]             European Parliament Resolution of 2 February 2012 on
‘Towards a Coherent European Approach to Collective Redress’ (2011/2089(INI)).

[28]             Point 1 of the Resolution.

[29]             Point 5 of the Resolution.

[30]             Point 4 of the Resolution.

[31]             Point 7 of the Resolution.

[32]             Point 8 of the Resolution.

[33]             Point 15 of the Resolution.

[34]             Point 16 of the Resolution.

[35]             E.g. the UK follow-on representative action for damages
arising from breaches of competition law that have been determined by competent
authorities.

[36]             See points 6-9 of the Commission Recommendation.

[37]             The ‘opt-out’ system has two advantages that explain
why some Member States have introduced it: first, it facilitates access to
justice in cases where individual damage is so small that some of the potential
claimants would not opt in to the proceedings. The second is that ‘opt-out’
proceedings give more certainty to the defendant, since the judgment would not
bind only those who opted out.

[38]             The UK consumer organisation Which? refers to its
experience in the Replica Football Shirts case, where an ‘opt-in’ collective
action (follow-on damages action in the competition field) ultimately secured
compensation for only a tiny percentage of those harmed in the terms of the
decision of the competent authority.

[39]             In the competition field, many stakeholders emphasise
the need to protect the effectiveness of leniency programmes applied by the
Commission and national competition authorities when enforcing EU rules against
cartels. Other issues frequently mentioned in this context include the binding
effect of infringement decisions by national competition authorities with
regard to follow-on collective damages actions and setting specific limitation
periods for bringing such follow-on actions.

[40]             As amended by Regulation (EC) no 1215/2012 that will
enter into application 10 January 2015. OJ L 351, 20.12.2012.

[41]             Regulations (EC) No 593/2008 on the law applicable to
contractual obligations (Rome I), OJ L 177, 4.7.2008, and (EC) No 864/2007 on
the law applicable to non-contractual obligations (Rome II), OJ L 199,
31.7.2007.

[42]             Article 47 of the Charter of Fundamental Rights of the
European Union.

[43]             This is already the case for mediation in cross-border
disputes, where, in accordance with Article 5 of Directive 2008/52/EC on
certain aspects of mediation in civil and commercial matters, courts before
which an action is brought may invite the parties to use mediation in order to
settle the dispute.

[44]             See point 30 of the Commission Recommendation. In cross-border
civil and commercial disputes, under Directive 2008/52/EC, the content of an
agreement resulting from mediation is to be made enforceable by the court
requested unless it is contrary to the law of the Member State where the
request is made or the law of that Member State does not provide for its
enforceability.

[45]             See points 27-30 of the Commission Recommendation. The Directive
on consumer Alternative Dispute Resolution does not prevent Member States
maintaining or introducing alternative dispute resolution procedures that deal
jointly with identical or similar disputes between a trader and several
consumers, thus enabling collective alternative dispute resolution procedures
to develop.

[46]             Such costs include court fees, remuneration of legal
representatives, costs of participation in the hearing, costs of general case
management, costs of expert’s analyses.

[47]             The national legal aid systems should be appropriately
used to prevent this.

[48]             See point 15 of the Commission Recommendation.