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Collective Actions in Europe - A Comparative, Economic and Transsystemic Analysis | Csongor István Nagy | download
Main Collective Actions in Europe - A Comparative, Economic and Transsystemic Analysis
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A Comparative,
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A Comparative, Economic and Transsystemic
University of Szeged, Department of Private
Federal Markets “Momentum” Research
ISBN 978-3-030-24222-0 (eBook)
https://doi.org/10.1007/978-3-030-24222-0
In the last three decades, Europe has seen a remarkable proliferation of collective
action legislation, making class actions one of the most successful export product
of the American legal scholarship. While its spread has been surrounded by distrust
and suspiciousness, today more than half of the EU Member States have introduced
collective actions for damages and, from those who did, more than half chose, to
some extent, the opt-out system. This book gives an analytical presentation of how
Europe made class actions in its own image. It demonstrates why collective actions
have been felt needed from the perspective of access to justice and effectiveness of
law and presents the European debate and the deep layers of the European reaction
and resistance. It unfolds how the Copernican turn of class actions questions the
fundamentals of the European thinking about market and public interest. It analyzes, through a transsystemic presentation of the European national models, the
way collective actions were accommodated with the European regulatory environment, the novel and peculiar regulatory questions they had to address and how
and why they work differently on this side of the Atlantic.
The author is indebted to Prof. Laura Carballo, Prof. Caroline Cauffman, Prof.
Laura Ervo, Dr. Andre Fiebig, Dr. Pavle Flere, Dr. Maciej Gac, Prof. Clifford A.
Jones, Prof. Christian Kersting, Prof. Jurgita Malinauskaite, Prof. Francisco
Marcos, Prof. Manos Mastromanolis, Prof. Alexandra Mikroulea, Dr. Anton Petrov,
Prof. Barry J. Rodger, Dr. Thibault Schrepel, Prof. Caterina Sganga, Prof. Miguel
Sousa Ferro, Prof. Astrid Stadler and Dr. Magdalena Tulibacka for their comments.
Of course, all views and any errors remain the author’s own.
This volume was published as part of the research project of the HAS-Szeged
Federal Markets ‘Momentum’ Research Group. It draws on the author’s following
publications: Nagy CI (2013) Comparative collective redress from a law and economics perspective: without risk there is no reward! Columbia J Eur Law 19(3):
469–498; Nagy CI (2015) The European collective redress debate after the
European Commission’s Recommendation: one step forward, two steps back?
Maastricht J Eur Compar Law 22(4):530–552. The manuscript was closed on
1 April 2019. Hence, it does not incorporate the Italian legislation adopted on 12
April 2019 (Legge, 12/04/2019 n° 31. Disposizioni in materia di azione di classe
(19G00038), GU Serie Generale n. 92 del 18-04-2019).
2 Why Are Collective Actions Needed in Europe: Small Claims
Are Not Reasonably Enforced in Practice and Collective Actions
Ensure Effective Access to Justice . . . . . . . . . . . . . . . . . . . . . . . . .
2.1 What Are the Hurdles Faced by Small Claims in Europe . . . . .
2.2 How Do Collective Actions Overcome the Above Hurdles
and Why Are They Efﬁcient? . . . . . . . . . . . . . . . . . . . . . . . . .
2.3 Why Are Collective Actions Not Working Spontaneously
if They Are Efﬁcient? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.4 How Could Collective Actions Be Made Work? . . . . . . . . . . . .
3 Major European Objections and Fears Against the Opt-Out
System: Superego, Ego and Id . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.1 European Objections Against Class Actions: Scruples
or Pretexts? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.1.1 Constitutional Concerns: Private Autonomy
and Tacit Adherence . . . . . . . . . . . . . . . . . . . . . . . . . .
3.1.2 Opt-Out Collective Actions Are Alien to Continental
Legal Traditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.1.3 It Is Very Difﬁcult to Identify the Members of the Group
and to Prove Group Membership . . . . . . . . . . . . . . . . .
3.1.4 Opt-Out Collective Actions Would Lead to a Litigation
Boom and Would Create a Black-Mailing Potential for
Group Representatives . . . . . . . . . . . . . . . . . . . . . . . . .
3.2 The Headspring of European Taboos and Traditionalism:
Party Autonomy and the State’s Prerogative to Enforce
the Public Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.3 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4 Transatlantic Perspectives: Comparative Law Framing . . . . .
4.1 Disparate Regulatory Environments . . . . . . . . . . . . . . . . . .
4.2 Why Should Europeans Not Fear the American Cowboy?
Diverging Effects of Disparate Regulatory Environments . .
4.3 The Novel Questions of Collective Actions in Europe . . . .
4.3.1 Funding in the Absence of One-Way Cost-Shifting,
Contingency Fees and Punitive Damages . . . . . . . .
4.3.2 Two-Way Cost-Shifting . . . . . . . . . . . . . . . . . . . . .
4.3.3 Distrust of Market-Based Mechanisms
in the Enforcement of Public Policy
(No Private Attorney General) . . . . . . . . . . . . . . . .
4.3.4 European Opt-In Collective Actions and Joinders
of Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.3.5 Opt-Out Systems and the “Only Beneﬁts” Principle .
4.4 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5 European Models of Collective Actions . . . . . . . . . . . . . . . . . . . .
5.1 The European Landscape: To Opt in or to Opt Out? . . . . . . . .
5.2 Purview: Step-by-Step Evolution of a Precautious Revolution .
5.3 Pre-requisites of Collective Action and Certiﬁcation . . . . . . . .
5.4 Standing and Adequate Representation . . . . . . . . . . . . . . . . .
5.5 Status of Group Members in Opt-in Proceedings:
Liability for Legal Costs and Res Judicata Effect . . . . . . . . . .
5.6 Status of Group Members in Opt-Out Proceedings:
Liability for Legal Costs, Res Judicata Effect
and the “Only Beneﬁts” Principle . . . . . . . . . . . . . . . . . . . . .
5.7 Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.8 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.1 Collective Actions Are Needed in Europe to Ensure Access
to Justice and Effectiveness of the Law . . . . . . . . . . . . . . . .
6.2 European Objections and Fears Against the Opt-Out System:
Superego, Ego and Id . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.3 Transatlantic Perspectives: Comparative Law Framing . . . . .
6.4 European Models of Collective Actions: A Transsystemic
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
6.5 Closing Thoughts: “Small Money, Small Football, Big Money,
Big Football” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
Class actions have probably been the most successful export product of the American legal scholarship.1 While the US legal system does have quite a few peculiarities
(such as deterrent punitive and treble damages, extensive pre-trial discovery, constitutionally entrenched jury trials), class actions stand out from these in terms of both
intellectual impact and controversial reception. They fulfilled a determinative role,
either as a source of inspiration or as a point of reference, in the appearance and
evolution of EU collective actions. While a few decades ago collective actions were
very rare outside the US and were considered esoteric, nowadays, they are part of the
legal systems of Australia and several countries in the Americas (Canada2 and Latin
America3 ) and in Europe, and, even if they happened to reject them, all these systems
considered the US class action4 as the Caballine Fountain and point of reference.
Interestingly, while the spread of collective actions has been remarkable, it has
generated the same amount of criticism and fear in Europe5 : albeit that the class action
is certainly not the only legal transplant whose reception divides a legal community, it
Hensler (2017: 965–966).
provinces of Canada introduced collective litigation, such as British Columbia, Class
Proceeding Act 1995, S.B.C. ch 21 (1995), Ontario, Class Proceeding Act 1992, S.O. ch 6 (1992),
Quebec, Quebec Civil Code, Book IX., Newfoundland & Labrador, Class Actions Act, S.N.L.,
ch. C-18.1 (2001) (Newfoundland & Labrador), Saskatchewan, The Class Actions Act, S.S., ch.
C-12.01 (2001) (Saskatchewan). The class action is also part of the Federal Court Rules, Federal
Court Rules, Part 4, 299.1–42.
3 See Gidi (2003: 311, 2012: 901).
4 For a comprehensive overview of the US class action, see Anderson and Trask (2010).
5 Cf. Buxbaum (2014: 585, 586) (“In previous decades, the primary flashpoint for friction in crossborder civil litigation was the discovery process (…). Today, the flashpoint for such debates seems
to be the class action.”).
C. I. Nagy, Collective Actions in Europe,
SpringerBriefs in Law, https://doi.org/10.1007/978-3-030-24222-0_1
proved to be one of the most controversial. It is not an exaggeration to say that the US
class action (as reshaped in 1966)6 was a “Copernican turn” in civil procedure: while
normally the procedure is organized around the claim, in class actions claims are
organized around the procedure. Due to this paradigm-shift, class actions interfere
with one of the taboos of civil-law—representation without authorization (opt-out
rule)7 —and one of the central principles of societal organization: public policy should
be done exclusively by the state and its enforcement cannot be privatized (no “private
attorney general”).8
Not surprisingly, in Europe, few legal reforms have been subject to so much
hesitation, scare-mongering and phobia of novel legal solutions as the introduction
of collective actions.9 The entry into force of the Italian law of 2007 on collective
proceedings was, due to professional protest, suspended for two years and, at the
end of the day, a new act was adopted in 2009.10 In Hungary, the President of the
Republic vetoed an act on collective actions adopted by the Hungarian parliament
in 2010 (the act followed the opt-out principle).11 In July 2009, the conversion of
the opt-in scheme into an opt-out system was refused in England and Wales,12 while
recently the opt-out scheme was made available in competition matters, subject to
the Competition Appeal Tribunal’s discretion.13
was the 1966 amendment that effectively introduced opt-out class actions. See Yeazell (1987:
229–232). Beforehand, although opt-in class actions had been available since 1938, class actions
had not been a major force. Only the move to the opt-out scheme enabled class actions to become
effective and common. Sherman (2003: 130, 132–133).
7 In the traditionalist opt-in system only those group members are involved in the collective litigation
who expressly assent to it, contrary to the “notice and opt-out” system, where silence implies assent
and those group members who do not want to get involved have to opt out.
8 See Hodges (2011), Blennerhassett (2016: 28).
9 Taruffo (2001: 414) (“[T]he European rejection of class actions—essentially based upon ignorance—has usually been justified by the necessity of preventing such a monster from penetrating
the quiet European legal gardens.”). For an overview of the central issues of collective actions in
the EU, see Udvary (2013).
10 Act 244 of 24 December 2007 (Legge 24 Dicembre 2007, n. 244), Act 99 of 23 July 2009 (Legge
23 Luglio 2009, n. 99). See Siragusa and Guerri (2008: 32), Nashi (2010: 147).
11 See Proposal No T/11332 on the Amendment of Act III of 1952 on the Civil Procedure (“T/11332.
számú törvényjavaslat a polgári perrendtartásról szóló 1952. évi III. törvény módosításáról”). As
noted above, the proposal was vetoed by the President of the Republic of Hungary.
12 The Government’s Response to the Civil Justice Council’s Report, Improving Access to Justice
through Collective Actions (2009). See Hodges (2010: 376–379), Hodges (2009: 50–66).
13 Sections 47A-49E of Competition Act 1998, inserted by Part 1 of Schedule 8 of the Consumer
Rights Act 2015.
The EU “federal” regulation of collective actions has also featured a similar oscillation.14 In October 2009, the European Commission withdrew its proposal for an
opt-out system15 and, after a public consultation carried out one and a half years later
and the European Parliament’s rejection of the opt-out principle,16 it finally adopted
a non-binding recommendation in 2013 championing the opt-in system and rejecting the most important elements of the US class action.17 Nonetheless, recently, a
rather promising development appeared on the horizon of EU collective actions. In
April 2018, the Commission proposed the adoption of a collective action scheme
(termed “representative action”) in the field of consumer protection law.18 Although
the proposed directive evades the dilemma of opt-in and opt-out through leaving the
choice to Member States,19 it will have an unquestionable virtue: if enacted, it will
make consumer collective actions uniformly available in all the Member States.
Both traditionalist conservatism and furious economic lobbying are claimed to
have accounted for the foregoing developments. The coalition of these two elements
often proved to be unsurmountable. It has not been exceptional to see progressive
proposals elaborated in the scholarly laboratories torpedoed by intensive economic
lobbying20 and fail to get through the political filter. In some cases they were fully
rejected (for example, in England and Wales in 2009,21 though, as noted above,
recently the opt-out scheme was made available in competition law, subject to the
Competition Appeal Tribunal’s discretion).22 In other cases, the initially progressive
and effective proposal was emasculated, and the version that was finally adopted was
14 For an overview of EU law’s approach as to enforcement in the various sectors, see Faure and
15 The text is available in Lowe and Marquis (2014: 511–536). See Ioannidou (2011: 78–80).
16 European Parliament resolution of 2 February 2012 on “Towards a Coherent European Approach
to Collective Redress”, (2011/2089(INI)).
17 Commission Recommendation of 11 June 2013 on common principles for injunctive and compensatory collective redress mechanisms in the Member States concerning violations of rights granted
under Union Law. OJ L 201/60. For a general criticism of the Recommendation, see Rathod and
Vaheesan (2016: 346–352).
18 Proposal for a Directive on representative actions for the protection of the collective interests of
consumers, and repealing Directive 2009/22/EC, COM(2018) 184 final. See European Parliament
legislative resolution of 26 March 2019 on the proposal for a directive of the European Parliament and
of the Council on representative actions for the protection of the collective interests of consumers,
and repealing Directive 2009/22/EC (COM(2018)0184—C8-0149/2018—2018/0089(COD)).
20 “There is a strong, well-organized, well-funded and influential opposition to the proposal on class
actions”. Lindblom (1996: 85), quoted in Välimäki (2007). See Välimäki (2007), Lindblom (2007:
9, 31), Lindblom (2008: 14).
21 The Government’s Response to the Civil Justice Council’s Report, Improving Access to Justice
through Collective Actions (2009).
22 The Competition Appeal Tribunal specifies in the collective proceedings order whether the procedure has to be carried out in the opt-in or the opt-out system. Sections 47A-49E of Competition
Act 1998, inserted by Part 1 of Schedule 8 of the Consumer Rights Act 2015.
deprived of all the virtues that could make the system workable and widespread (see
Finland23 and France).24
This volume gives a transsystemic analysis of European collective actions and an
overview of how Europe made class actions in its own image. It addresses collective
actions’ reception, development and core features and gives a critical analysis of the
European approach. This is done through analysing the pivotal regulatory questions
from an economic and comparative perspective. Quantitative economic analysis is
used to describe the decision-making process of the private actors of litigation (plaintiffs, group representatives and defendants): the actors are dealing with a production
process, whose output is litigation, measured by possibly recovered losses.
The book’s structure is based on the following pillars.
First, the book gives a law and economics analysis of small claims, demonstrating the need for the introduction of collective actions to secure access to justice and
showcasing the benefits of the opt-out scheme. It demonstrates that the central function of collective actions is to tackle the problem of organizational costs, through
mitigating and handling the risks attached to them, thus making litigation a possibility in cases that otherwise would not get to court. It argues that the opt-out system
tackles the problem of organizational costs in the most efficient manner. Although
the group’s organizational costs can be reduced through different techniques (for
instance, through easing adhesion) and, hence, an opt-in system may also be capable
of reducing organizational costs through simplifying the organization of the group,
the most cost-effective method is the opt-out system, which is capable of reducing
the costs to the minimum (albeit certainly not to zero).
Second, the book addresses and refutes the major arguments and fears against
the opt-out system (constitutional inconformity, European traditionalism, exaggerated practical difficulties and the fear of a litigation boom and legal blackmailing
potential), inquiring whether these are genuine scruples or pretexts veiling a deeper
aversion against class actions. This chapter examines the problem of “representation
without authorization” and demonstrates that this is not incompatible either with
national constitutional requirements or with European legal traditions. It shows that
a collective action system based on the opt-out principle is feasible and would cause
no litigation boom and would create no blackmailing potential. It argues that the
headspring of Europe’s instinctive resistance against American class actions and the
subconscious reason why it is so difficult to reconcile the “Copernican turn” of class
actions with European traditionalism are the taboo of party autonomy and the state’s
entrenched prerogative to enforce the public interest.
Third, the book gives an account of the differences between the US and European framework and demonstrates how the disparate regulatory environments entail
diverging effects and why and how the European legal and social environment raises
23 Välimäki
(2007: 3).
introduction of collective actions into French law had been examined by two professional
committees in the era long before the adoption of the new provisions of the French Consumer Code
(Code de la consummation) in 2014. Both committees proposed the introduction of a quasi-opt-out
scheme. However, the legislator did not follow any of them. Magnier (2007: 4).
regulatory issues that do not emerge on the other side of the Atlantic. The collective
action is a genuine legal transplant in Europe whose comparative analysis has to
extend to a large array of framing legal institutions (e.g. contingency fees, American
rule of attorney’s fees, punitive and treble damages), which need to be addressed to
delimit class actions from the operation of unrelated legal doctrines. Furthermore, as
a conception fully alien to traditional civil-law thinking, in Europe collective actions
raise various questions that do not emerge on the other side of the Atlantic.
This chapter gives an outline of the legal and cultural context of European collective action mechanisms and explains in what this context differs from the environment of US class actions. It demonstrates, through a law and economics comparison
between US and European collective actions, that the criticism against the US opt-out
class action is not valid if it is applied in Europe. The volume demonstrates that the
overgrowths of the US class action are not entailed by the class action itself but rather
by the cultural and regulatory environment it operates in; it is the contextual concepts
and rules of US law that catalyse the operation of class actions (“American rule” of
attorney’s fees, punitive damages etc.). It is argued, on the basis of theoretical and
empirical considerations, that the overgrowths of the US class action do not come
up if this regulatory pattern is applied in Europe.
It is also argued that the effectiveness and widespread use of collective litigation
and the potential for abuse and adverse effects are inversely proportional to each
other. On the one hand, economically speaking, the group representative’s expected
income and expected costs cannot be equilibrated in the absence of an appropriate
risk premium. On the other hand, such a risk premium would move the European
regulatory environment from its current position towards US law. The European
legislator or legislators need to find the point of equilibrium where the marginal
benefit of effective litigation equals the marginal cost of abuse and adverse effects.
Alternatively, they may refuse to provide a risk premium to the group representative;
empirical evidence shows that, mainly due to non-economic considerations, collective litigation may also be workable in the absence of a risk-premium, albeit on a
low-key level.
Fourth, the volume gives a transsystemic presentation of the European national
schemes along the key issues of collective actions: purview (sectoral or general),
standing, opt-in and opt-out principle, pre-requisites of collective action, status of
group members (whether they are considered parties or non-parties affected by the
litigation), legal costs (cost shifting and members’ liability) and funding, res judicata effects and enforcement. Collective action legislation is relatively widespread
in Europe and plentiful Member States, as well as the European Commission have
introduced group proceedings. This chapter demonstrates how Europe’s legal tradition shaped the reception of collective actions, showing how European legal systems
struggled with accommodating the idea of class action with European legal thinking.
It also demonstrates the creative efforts certain European countries made to reconcile representation without authorization (the opt-out rule) with the taboo of party
autonomy and the notion that the enforcement of public policy cannot be privatized.
Fifth, in the conclusions, the volume gives an analytical summary and critical
evaluation of the emerging European collective action model and submits proposals
for the advancement of access to justice and effectiveness of law through collective
This volume examines the collective enforcement of claims for monetary recovery; European mechanisms for non-monetary remedies (such as declaratory judgments, injunctions) fall out of this volume’s focus. Accordingly, it deals only with
procedures where plaintiffs enforce pecuniary claims. Procedures where a representative plaintiff may seek merely a declaratory judgment or an injunction without having
the possibility to claim monetary redress—a pattern that has been available in Europe
long since—are not covered.25 In the same vein, procedural mechanisms where individual actions are coordinated after they have been launched, as well as collective
settlement mechanisms, do not come under the focus of the analysis, because, as
explained below, they do not advance the collective enforcement of claims. Notably,
in the first case (see, for instance, the German Capital Markets Model Case Act)
claims are brought individually and then coordinated, implying that the mechanism
does not facilitate access to justice through a collective vehicle but coordinates claims
that were susceptible of being brought on an individual basis; in the second case, the
mechanism cannot be used to enforce the claim but to handle mass cases where the
defendant is willing to concede liability. Similarly, for reasons explained below, the
use of traditional joinder of parties for handling collective matters, though addressed,
does not come under the focus of this book.
In this volume, the term “opt-out system” means that group representatives may
institute a collective action without any explicit authorization from the members
of the group, who, in turn, may (or may not) leave the group through an express
declaration (opt-out). Those who are given notice but do not opt out expressly are
considered to be assenting to the procedure. The term “US class action” will be used
as the rough equivalent of the opt-out system. The term “opt-in system” means that
group representatives may act only on behalf of those group members who explicitly
authorized them to do so, i.e. who opted in.
In this volume, “collective action” will be used as a general term referring to
group litigation mechanisms at large, while the term class action will refer to the
US system. For the sake of simplicity, the economic calculations are based on the
assumption that the decision-maker is risk-neutral and use the concept of expected
value instead of expected utility. Furthermore, for the sake of simplicity, calculations
occasionally assume that in Europe legal costs can be shifted in full to the losing
party, disregarding legal and practical hurdles; likewise, they will proceed from the
proposition that the plaintiff almost never has a 100% chance to win a case.
e.g. Directive 2009/22/EC on injunctions for the protection of consumers’ interests, [2009]
OJ L 110/30.
Anderson B, Trask A (2010) The class action playbook. Oxford University Press, Oxford
Blennerhassett J (2016) A comparative examination of multi-party actions: the case of environmental
mass harm. Hart Publishing, Oxford
Buxbaum HL (2014) Class actions, conflict and the global economy. Indiana J Global Legal Stud
21(2):585–597
Faure M, Weber F (2017) The diversity of the EU approach to law enforcement—towards a coherent
model inspired by a law and economics approach. German Law J 18:823–879
Gidi A (2003) Class actions in Brazil—a model for civil law countries. Am J Compar Law
51(2):311–408
Gidi A (2012) The recognition of US class action judgments abroad: the case of Latin America.
Brooklyn J Int Law 37(3):893–965
Hensler DR (2017) From sea to shining sea: how and why class actions are spreading globally. Univ
Kansas Law Rev 65:965–988
Hodges C (2009) From class actions to collective redress: a revolution in approach to compensation.
Civil Justice Quart 28:41–66
Hodges C (2010) Collective redress in Europe: the new model. Civil Justice Quart 29(3):370–395
Hodges C (2011) Objectives, mechanisms and policy choices in collective enforcement and redress.
In: Steele J, van Boom WH (eds) Mass justice. Edward Elgar, Cheltenham, pp 101–117
Ioannidou M (2011) Enhancing the consumers’ role in EU private competition law enforcement: a
normative and practical approach. Competition Law Rev 8(1):59–85
Lindblom PH (1996) Grupptryck mot grupptalan (Group pressure against group action). Svensk
Juristtidning 81:85–107
Lindblom PH (2007) National report: group litigation in Sweden, The globalization of class
actions. http://globalclassactions.stanford.edu/sites/default/files/documents/Sweden_National_
Report.pdf. Accessed 20 April 2019
Lindblom PH (2008) Globalization of class action. National report: group litigation in Sweden. Update paper sections 2.5. and 3. http://globalclassactions.stanford.edu/sites/default/files/
documents/Sweden_Update_paper_Nov%20-08.pdf. Accessed 20 April 2019
Lowe P, Marquis M (eds) (2014) European competition law annual 2011: integrating public and
private enforcement of competition law—implications for courts and agencies. Hart Publishing
Magnier V (2007) Class actions, group litigation & other forms of collective litigation—France.
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National_Report.pdf. Accessed 20 April 2019
Nashi R (2010) Italy’s class action experiment. Cornell Int Law J 43:147–173
Rathod J, Vaheesan S (2016) The arc and architecture of private enforcement regimes in the
United States and Europe: a view across the atlantic. University of New Hampshire Law Review
14:303–375
Sherman EF (2003) American class actions: significant features and developing alternatives in
foreign legal systems. Federal Rules Decisions 215:130–157
Siragusa M, Guerri E (2008) Collective actions in Italy: too much noise for nothing? Global Competition Litigation Rev 1(1):32
Taruffo M (2001) Some remarks on group litigation in comparative perspective. Duke J Constitut
Law Public Policy 11:405–421
Udvary S (2013) A kollektív jogorvoslat európai szabályozásának főbb csomópontjai és folyamata.
Európai Jog 13(6):1–11
Välimäki M. (2007) Introducing class actions in Finland—lawmaking without economic analysis.
http://ssrn.com/abstract=1261623. Accessed 20 April 2019
Yeazell SC (1987) From medieval group litigation to the modern class action. Yale University Press,
Why Are Collective Actions Needed
in Europe: Small Claims Are Not
Reasonably Enforced in Practice
and Collective Actions Ensure Effective
It is probably very easy to agree with the tenet that “[r]ights which cannot be
enforced in practice are worthless.”1 Small claims face hurdles that may prevent
individual enforcement and lead to sub-optimal litigation.2 While the practical nonenforceabilty of small value claims is often conceived as a question of effectiveness,3
it also has serious human rights and rule of law implications.4
Article 47 of the EU Charter of Fundamental Rights, with reference to legal aid,
treats access to justice as part of the right to an effective remedy and to a fair trial.5
Access to justice is also part of the requirement of rule of law, one of the core values
of the EU enshrined in Article 2 TEU.6
Furthermore, Member States, due to the principle of loyalty, are obliged to ensure
the effective enforcement of EU law. According to Article 4(4) TEU, “Member
States shall take any appropriate measure, general or particular, to ensure fulfilment
of the obligations arising out of the Treaties or resulting from the acts of the institutions of the Union.” According to the CJEU’s judicial practice, Member States’
enforcement of EU law is subject to two general requirements: the principle of equivalence and the principle of effectiveness. National rules governing the enforcement
of EU law may not be less favorable than those governing similar domestic actions
Commission Staff Working Document Public Consultation: Towards a coherent European approach to collective redress, SEC (2011) 173 final, para 1.1.
2 For a detailed elaboration of the analysis set forth in this section, see Nagy (2013: 469–498).
3 See Neumann and Magnusson (2011: 154–155), Juska (2014), Bosters (2017: 17).
4 For an overview of the intersection between collective actions and human rights, in particular access
to justice, see Hodges (2008: 187–192), Lange (2011: 95–106), Neumann and Magnusson (2011:
151–152), Wrbka et al. (2012), Azar-Baud (2012: 15, 17–18), Vanikiotisa (2014: 1643–1644),
Mulheron (2014: 52–57).
5 “Legal aid shall be made available to those who lack sufficient resources in so far as such aid is
necessary to ensure effective access to justice.”
6 European Union Agency for Fundamental Rights and Council of Europe (2016: 16).
SpringerBriefs in Law, https://doi.org/10.1007/978-3-030-24222-0_2
2 Why Are Collective Actions Needed in Europe …
(principle of equivalence) and they may not make the enforcement of EU law practically impossible or excessively difficult.7
Not surprisingly, the Commission’s Recommendation on Collective Redress
defines collective actions as a means to “facilitate access to justice in relation to
violations of rights under Union law” and to reinforce the effectiveness of EU law.8
The purpose of this Recommendation is to facilitate access to justice, stop illegal practices and
enable injured parties to obtain compensation in mass harm situations caused by violations
of rights granted under Union law, while ensuring appropriate procedural safeguards to avoid
abusive litigation.9
The Recommendation is based on the premise that collective actions enhance both
the effectiveness of the law (through stopping and deterring unlawful practices) and
the chance to obtain a real legal remedy (compensation).
These measures are intended to prevent and stop unlawful practices as well as to ensure
that compensation can be obtained for the detriment caused in mass harm situations. The
possibility of joining claims and pursuing them collectively may constitute a better means
of access to justice, in particular when the cost of individual actions would deter the harmed
individuals from going to court.10
This chapter demonstrates how and why collective actions make the enforcement
of small value claims a reality, thus ensuring access to justice and effectiveness of
the law. It addresses three questions: why is the practical enforcement of small value
claims difficult or even unfeasible, how do class actions make it work and why can
class actions not become a reality without legislative intervention?
In case of small-value claims it may be economically unreasonable to litigate (the
expected costs may be higher than the expected value) even in well-founded cases
of merit. First, non-recoverable legal costs may deter litigation. Although in Europe
legal costs are, in principle and with some restrictions, borne by the losing party, the
winning party cannot shift the legal costs in full. Second, the costs of the preliminary
legal assessment may also dissuade the plaintiff. Third, in the context of small claims,
the value at stake is small and legal costs are, in comparison to the claim’s value,
very high—here, a relatively trivial probability of failure may make the balance of
litigation negative. The higher the legal costs are in relation to the claim’s value, the
better this risk crops out.
Collective actions have certain advantages that make the enforcement of small
claims possible in cases where numerous persons are damaged by the same illegal
act. Although damages are small for each individual (which may make litigation
unreasonable), collective damages (the sum of various individuals’ damages) are
high. The merit of collective actions can be attributed to two virtues: economies of
e.g. Case C-261/95 Palmisani [1997] ECR I-4025, para 27; Case C-453/99 Courage and
Crehan [2001] ECR I-6297, para 29; Joined Cases C-295/04 to C-298/04 Manfredi [2006] ECR
I-06619, para 62.
8 Recitals (1) & (10).
10 Recital (9).
scale11 and tackling external economic effects (externalities). These are due to the
fact that the enforcement of individual small claims may have significant common
costs12 and individual litigation may entail positive external effects (externalities),
conferring advantages on other class members they did not pay for.
Although group members could avail themselves of various traditional legal tools
(joinder of parties,13 assignment of claims to an entity founded by group members) to
organize the group,14 these are, at leat in case of small claims, not effective substitutes
of collective actions owing to the costs of group organization. These costs may be
very high, in some cases even prohibitive,15 and traditional legal tools are not tailored
to the needs of collective litigation, thus increasing the costs of group management.16
For the purpose of the present volume, small claims are defined as civil claims
where the litigation’s expected value is less than its expected costs (out-of-pocket
expenses and related inconvenience). At this point, for the sake of simplicity, it is
disregarded that the same value (pay-out) may have different utilities for people with
different assets and personal preferences (expected utility); likewise, it is assumed
that the decision-maker is risk-neutral. When calculating the expected value, it is
to be taken into account that litigation is burdened by dubiety and the outcome, in
terms of practice, cannot be predicted with full certainty. Hence, a rational decisionmaker makes his choice whether to enforce the claim or not on the basis of the
balance of litigation’s expected value (which stands for the revenue if carrying the
day multiplied by the probability that the plaintiff wins the law-suit) and expected
costs. If the expected value exceeds the expected costs, it is reasonable to sue.
2.1 What Are the Hurdles Faced by Small Claims in Europe
In Europe, there are essentially three factors that may discourage potential plaintiffs
from enforcing their claims: the “loser pays” principle does not work to the full (there
are some legally unrecoverable expenses and there are some expenses that cannot be
proved), the costs of the preliminary legal assessment and the risk of losing the lawsuit (legal and factual uncertainties and dubiety related to the law-suit’s outcome;
i.e. the risk of bearing the legal costs).
e.g. Ulen (2011: 185, 187).
Bone (2003: 261–265).
13 Nagy (2011: 163), Geiger (2015: 32–73).
14 See Commission Report on the implementation of the Commission Recommendation of 11
June 2013 on common principles for injunctive and compensatory collective redress mechanisms
in the Member States concerning violations of rights granted under Union law (2013/396/EU),
COM(2018) 40 final, p 2 (“In the Member States where (…) [collective redress mechanisms] do
not formally exist there appears to be an increasing tendency of claimants attempting to seek collective redress through the use of different legal vehicles like the joinder of cases or the assignment
of claims.”).
15 Ulen (2011: 185, 191).
16 For a detailed analysis, see Nagy (2013: 469, 478–479).
First, legal costs may deter litigation. As in Europe legal costs are, in principle
and with some restrictions, borne by the losing party, the advancing of legal costs
should, theoretically, not impede the enforcement of well-founded claims, if assuming that there is 100% probability that the plaintiff wins the law-suit. Nevertheless,
in practice, this is seldom the case. The winning party cannot shift the legal costs
in full onto the losing party: the proof and documentation of the legal costs may be
difficult; furthermore, the law may restrict the amount of the attorney’s fees that can
be shifted on the losing party; finally, the preliminary legal assessment, examining
the probability of plaintiff success, occurs in a stage where the plaintiff has little
information about his chances.
Litigation gives rise to some practically unrecoverable expenses; these are to be
borne by the plaintiff irrespective of whether he carries the day or not (de facto
non-shiftable costs). There are certain costs that may be legally shifted but cannot be proved. Since in this regard the burden of proof rests on the plaintiff, he
inevitably faces some risk of proof emerging from factual uncertainties. It is not
realistic to assume that the party can prove all his costs before the court, since
smaller expenses may not be certifiable. In the context of small claims even relatively negligible expenses may be significant.
Furthermore, there are certain costs that legally cannot be shifted onto the losing
party (de jure non-shiftable costs): e.g. inconveniences related to litigation, the time
the plaintiff spends on the law-suit. One subset of this category is capped costs. For
instance, in certain European countries the law establishes the maximum amount
of attorney’s fees that can be shifted on the losing party, while the market price
of attorney services may be much higher.17 The usual perception is that the price
of attorney services is unregulated and the legally determined schedule of attorney’s
fees sets out lower fees than the market price. In this case the law, due to the schedule
of attorney’s fees, enables the plaintiff to shift his attorney’s fees only in part. In other
civil-law systems, there is no pre-determined schedule of attorney’s fees that can be
shifted on the losing party but the law authorizes the court to control the fees and it
may reduce the amount that can be shifted, if the attorney’s fees are not proportionate
to the work done or the value of the claim.18 Accordingly, the plaintiff faces some
uncertainty as to whether the attorney’s fees will be shifted at the end of the day.
Second, the expenses of the preliminary legal assessment may also discourage the
plaintiff. These consist of the information costs of learning whether the plaintiff has
a “good case” and how high the risk of losing the law-suit is. Here, the legal counsel
assesses the fact pattern and gives advice as to whether to sue and what the potential
outcomes of the law-suit are. Although these are costs that emerge in the litigation
process broadly speaking and, as such, the winning party may be able to shift them
onto the loser, it should not be disregarded that there is a good deal of information
shortage in such scenarios. Laymen themselves may not be able to do the preliminary
17 See the case of Germany: Rechtsanwaltsvergütungsgesetz vom 5. Mai 2004 (BGBl. I S. 718,
788), zuletzt geändert durch Artikel 3 des Gesetzes vom 8. Juli 2006 (BGBl. I S. 1426). On the
German system, see Wagner (2009: 367).
18 See the case of Hungary: Regulation 32/2003 (VIII. 22.) of the Minister of Justice.
legal assessment of their chances in a law-suit and, hence, when they are asking for a
legal advice they have to take into account that they may have to pay the costs of the
preliminary legal assessment even in a case when there is no reason to sue. Thus, in
case of small claims, the expenses related to the preliminary legal assessment may
have a discouraging effect because the party has to incur costs without knowing the
probability of whether they will be recovered or not.
Third, litigation inevitably involves some risk. As a matter of practice, almost all
law-suits have immanent risks; a claim may be a good case but seldom a perfect one,
let alone the risks emerging from enforcement issues and the defendant’s possible
insolvency. Accordingly, the party has to take into account that there is a certain risk
(even if a negligible one) that he loses the case and, hence, his legal costs would not
be recovered and he has to reimburse the opposing party for his expenses.
As in case of small claims the value at stake is small, a relatively trivial probability
of failure may make the balance of litigation negative. Assume that the plaintiff
suffered e 100 loss due to a bank’s overcharge and the legal costs would be e
10,000 altogether; it is also assumed that the claim is fully legitimate but the plaintiff
considers that there is a 1% chance that he would lose the case; finally, for the sake
of simplicity, it is also assumed that all legal costs are borne by the losing party (no
restrictions apply, neither legal, nor factual). In this case, the expected value of the
law-suit is e 100 × 0.99 = e 99, while the expected costs are e 10,000 × 0.01 =
e 100. As a corollary, the balance of litigation is negative (e 99 − e 100 = e − 1)
and it is not reasonable to sue. Accordingly, a negligible amount of risk may hinder
the plaintiff from the law-suit, if legal costs are high in relation to the claim’s value.
The higher the legal costs are in relation to the claim’s value, the better this risk crops
It needs to be added that, as a matter of practice, litigation usually involves some
risk, even if a negligible one. Furthermore, there is always a risk that even though
the court decides for the plaintiff, the enforcement of the judgment fails for some
reason (e.g. the judgment debtor becomes bankrupt).
The consequence of the above is that in matters where numerous victims suffer
individually small damages they are not seeking recovery on an individual basis
and the only legal tool that, in terms of practice, remains at their disposal is public
enforcement, e.g. administrative law, criminal law. Nonetheless, public enforcement
normally does not imply private recovery19 : no recovery accrues to the victim from the
criminal or administrative sanction imposed on the person committing the mischief.20
Accordingly, the conclusion may be drawn that in case of small claims the balance
of the expected value and the expected costs may be negative also in cases that should
be worth being brought before court, i.e. in cases that have a robust chance of success.
an exception to this general tenet, see Nagy (2012) (Demonstrating how the Hungarian
Competition Office uses commitment procedures to further remedies under private law.).
20 Contra Wagner (2011: 79) (Arguing that in case of scattered loss (small claims), the function
of collective redress is deterrence.); see also Gilles and Friedman (2006: 105) (Arguing that the
purpose of US consumer class actions is not to ensure compensation; instead, its sole purpose is
deterrence.).
2.2 How Do Collective Actions Overcome the Above
Hurdles and Why Are They Efficient?
In the following, it is demonstrated that collective actions have certain merits that
enable the enforcement of small claims in matters where numerous persons suffer
loss due to the same mischief (individual loss is small and, hence, as a matter of
practice, hardly enforceable, while the sum of the individual losses is high). The two
main reasons of this virtue are economies of scale21 and tackling the problem of
external economic effects (externalities).
Collective litigation may lead to economies of scale. There are common costs
between the claims and their joint enforcement may give rise to economies of scale
and help avoiding externalities that individual litigation may entail22 ; of course these
merits may be present not only in respect of small claims.
In related matters sharing common factual and legal issues, litigation costs are
usually not directly proportionate to the number of the parties (plaintiffs). If the
claims are tried in one action, witnesses have to testify only once and, similarly,
liability is to be deliberated only once.23 Accordingly, if the attorney’s workload is
10 h in relation to one client, this may, in case of 100 clients, be 100, 200 or 300 h
but not 1000 h. A substantial part of the legal costs, including attorney’s fees, may
be fixed costs, i.e. they emerge irrespective of the number of the parties, while the
rest is made up of variable costs, the volume of which depends on the number of
the parties. There are certain issues whose analysis is independent of the number of
the parties, while some other (factual and legal) issues are individual and cannot be
shared. The ratio between the fixed and variable costs depends on the circumstances;
nevertheless, it may be reasonably concluded that if the detriment suffered by the
victims is due to the same cause, common (fixed) costs are likely to exist and if the
fixed costs are substantial in relation to individual costs, collective litigation may be
Assume that there are 10 victims, each of them suffered damages in value of e
1000 and the costs of individual litigation are e 750 for the plaintiff and the defendant,
respectively, e 500 of which is fixed costs (at this point court fees, inflation and
interest on overdue payments are disregarded). Furthermore, assume that the plaintiff
has 50% chance to win the law-suit because this is a case of first impression raising
legal questions that have not been tried before. In case of individual litigation, the
balance of the expected value and the expected costs is the following: the expected
value is e 500 (e 1000 × 0.5), while the expected costs are e 750 (since the “loser
pays” principle applies, there is 50% chance that the plaintiff has to sustain the legal
costs of both parties: [2 × e 750] × 0.5), assuming that legal costs can be perfectly
calculated and shifted. Accordingly, the balance is negative (e 500 − e 750 = e −
250) and it is not reasonable to sue.
23 Ulen (2011: 187).
2.2 How Do Collective Actions Overcome the Above …
Nonetheless, the balance is positive in case of collective litigation, provided certain
costs can be shared.24 If all the 10 victims sue jointly, legal costs do not increase
considerably. The costs on the plaintiffs’ side are e 500 common fixed costs and e
250 individual variable costs multiplied by the number of group members (e 250 ×
10 = e 2500); altogether, this is e 3000. For the sake of simplicity, assume that the
legal costs on the defendant’s side do not change: e 750. As a corollary, the total sum
of the legal costs is e 3750 and the expected costs are e 3750 × 0.5 = e 1875. On
the other hand, the expected value decuples: e 1000 × 0.5 × 10 = e 5000. Under
such circumstances, it is reasonable to sue, since the balance of the expected value
and the expected costs is positive (e 5000 − e 1875 = e 3125).
This calculation assumes linear variable costs (no economies of scale due to
variable costs); however, part of the variable costs may be degressive, making the
total cost of the joint production of collective action on the plaintiffs’ side less than
e 3000. For example, e 100 may be linear, resulting in costs of e 1000, while e 150
of the variable costs may be degressive and increase not 10 times but only 7 times, so
the total costs would amount to e 500 + e 1000 + e 1050 = e 2550. Under such
circumstances, it is even more reasonable to sue. The legal costs on the defendant’s
side do not change: e 750. The total sum of legal costs is e 3300, hence, the expected
costs are e 3300 × 0.5 = e 1650. The expected value remains unchanged: e 1000
× 0.5 × 10 = 5000 EUR. Under such circumstances, it is reasonable to sue, since
the balance of the expected value and the expected costs is positive (e 5000 − e
1650 = e 3350).
Another problem of individual enforcement of similar or identical claims emerging from the same cause is that individual litigation may entail significant positive
externalities on fellow-sufferers. The litigation’s “expected cost – expected value”
balance may be negative on individual level but positive on group (or social) level.
Since the positive external economic effect conferred on other group members is
not internalized by the individual litigator, this may lead to suboptimal enforcement.
This happens in test cases, which could be regarded as an alternative to collective
actions. Here, one of the group members, as a pioneer, institutes an individual action
in a matter that involves a question (or several questions) relevant for all group
members. Once the question becomes judicially settled in the test case, this entails
a positive externality on all other group members suing afterwards: since the court
answers one of the crucial questions in the test case, the litigation risks of other
group members decrease. Unfortunately, test cases are not an effective substitute of
collective litigation. One of the reasons is that they may lead to free-riding: nonactive group members free-ride on the efforts of the member initiating the test case.
Collective actions may tackle the positive externality problem through internalizing
all or most of the benefits of the law-suit and, thus, leading to socially optimal private
At the same moment, not only positive but also negative external effects may be
present here; if group members sue on an individual basis and the defendant wins
against the first plaintiff, this may have a negative impact on subsequent plaintiffs.
24 Ulen
(2011: 266).
Although the judgment given in the case of one of the group members has no res
judicata effect in actions brought by other group members, the judgment in the
first case may have precedential value or at least persuasive authority. Hence, the
defendant may find it rational to invest much more in winning the early cases, because
winning in these proceedings may discourage subsequent litigation.25
Likewise, collective actions may be cost-effective also for courts. Economies of
scale are present here too. Of course, it is to be noted that if individual litigation
would not occur due to the above hurdles and inconveniences, collective litigation
may actually entail extra-costs for courts, since it may bring matters before the
judiciary that would otherwise not be litigated. Nevertheless, this cost-saving is not
due to cost-effectiveness but reveals that collective actions may enable the litigation
of claims that would otherwise, due to practical hurdles, not come before the judiciary.
2.3 Why Are Collective Actions Not Working
Spontaneously if They Are Efficient?
Having demonstrated that collective litigation may be more efficient than individual
enforcement, the question emerges: why do group members not organize the group
proceedings themselves? European legal systems provide for both substantive and
procedural tools that could be used for collective litigation. Group members may
establish an entity (a company or association) and assign their claims to this entity.26
They may also establish a joinder of parties and sue jointly.27
The answer lies primarily in the costs of group organization.
First, these costs may be very high, even prohibitive28 , in case of small-claims.
Furthermore, the traditional legal tools that could be used to organize the group were
essentially not tailored to the needs of collective actions, thus increasing the costs of
organization. For instance, in case of a joinder of parties, individual group members
may have different legal representatives and may make pleadings that contradict each
other. A joinder of parties does not “centralize” the group; it simply enables group
members to be part of the same law-suit and to sit on the same side.
Second, the costs related to the organization of the group may not be or may not be
easily shifted. The “loser pays” principle relates to legal costs, and the concept of legal
costs may not be tailored to organizational expenses; hence, group representatives
may not expect reimbursement for these. Most European systems provide that the
losing party pays the costs of the proceedings; however, the expenses related to the
organization of the group emerge prior to the proceedings and, hence, their status,
25 Ulen
(2011: 189).
(2011: 16).
27 Nagy(2011: 163).
28 Ulen (2011: 191, 2012: 79).
2.3 Why Are Collective Actions Not Working …
in this system, is dubious. The group’s organizer (representative) may not expect
a reasonable return on his expenses, as within the group he may enforce only his
claim.29
Third, organizational costs qualify as transaction costs30 : they emerge also in case
the organization of the group fails and, hence, the collective action is not launched
at all. Since the stake of individual group members is small, they would not invest
in organizing the group due to the same reasons they do not engage in individual
Fourth, even if group organizers had the right to claim reimbursement for the
organizational costs, the same risk would be involved here as in case of legal costs:
cost-shifting occurs only if the plaintiff wins, while organizational expenses emerge
irrespective of the outcome of the collective action.
2.4 How Could Collective Actions Be Made Work?
There are different methods, which could be used to tackle the problem of high
organizational costs. These either reduce organizational expenses or tackle the risks
First, opt-out systems are associated with considerably lower organizational
costs.31 Organizational costs may be reduced significantly through providing that
group members do not have to join the group explicitly to become part of the collective action; it is sufficient if they do not leave the group (opt-out). In this case,
essentially, the group does not need to be organized, since power of attorney is conferred on group representatives by the law, albeit some organizational costs may
emerge. Empirical evidence shows that, not surprisingly, the rate of participation is
much higher in opt-out collective proceedings than in opt-in actions.32
Second, organizational costs may be mitigated even if the opt-in system is
adopted. Although traditional joinder of parties and assignment of claims have always
been available for group litigation, these entail considerable organization and case29 Silver
(2000: 206–207).
31 Cf. Delatre (2011: 38) (Submitting that the opt-out collective action would be sufficient “on
its own and without further incentives to lead to a substantial increase in the number of victims
compensated.”); Szalai (2014: 708–709).
32 See Mulheron (2008) 147–156 (A study of jurisdictions where modern empirical data existed
showed that opt-out rates had been between 0.1 and 13%; in respect of jurisdictions where such
data was not available, judicial summations indicated an opt-out rate between 0 and 40%. On the
other hand, in Europe, the experience indicated that the rate of participation, that is opt-in, was on
average less than 1% in large size collective proceedings, albeit in England and Wales participation
rate in group litigation varied considerably, from less than 1% to almost 100%.); Delatre (2011: 38)
(“It is (…) submitted that, in a bundle of similar incentives regarding the cost of the action, damages
and legal fees, the opt-out arrangement of a class action invariably includes more participants that
the alternate opt-in arrangement, as for equal incentives, the rate of rational apathy of victims will
always be higher than the rate of victims who opt-in.”).
management costs. A traditional joinder of parties is far from equal to an opt-in
collective action. In case of the former, individual group members retain their rights
over their own cases: they may make submissions independently from the rest of the
group, even if this thwarts the legal tactics of the group representative. In case of
an opt-in collective action, the group representative, though supervised by the court,
becomes the master of the case. Furthermore, in the opt-in system, organizational
costs may be further mitigated through the simplification of group organization (e.g.
simplifying the administrative burdens and formal requirements related to declarations of adherence).33
Third, the problem of organizational costs may be mitigated also through an effective cost-shifting mechanism: if extending the “loser pays” principle to organizational
costs, successful group representatives would be entitled to claim remuneration for
their reasonable organizational expenses.
Fourth, this extension of the notion of “legal costs” would not be sufficient to make
collective actions work, because group representatives would still run the risk of not
being reimbursed for their organizational efforts in the event they fail to organize
the group properly (group members do not authorize them in a sufficient number in
an opt-in system) or the probability of plaintiff success is less than 100% (which is
normally the case). Individual litigation involves two parties (i.e. the plaintiff and
the defendant), and when the plaintiff considers whether to sue or not to sue (that
being the question), he obviously takes into account the income accruing to him if
the claim is successfully enforced. Collective litigation involves a third actor as well:
the group representative, who has to draw his own individual balance of whether to
sue or not to sue; however, the group representative may not expect any income (or
only a small income, if he is also a group member) from the claims enforced. The
individual plaintiff may regard it reasonable to take the risk of not being reimbursed
for his legal costs and of being liable for the legal costs of the defendant, because
he knows that if he wins, he will get what he sues for. On the other hand, the group
representative has no individual stake in the claim or his claim as a group member is
incomparably smaller than the costs and risks he assumes in the interest of the group.
The “loser pays” rule and the inclusion of the organizational costs in its scope imply
that the group representative may be reimbursed for his expenses; however, these do
not imply that he will be reimbursed.
Therefore, it is not economically rational for the group representative to engage
in group organization in the absence of an appropriate risk premium, which—as a
general principle—is not afforded to him in Europe.34 While group representatives
33 For a discussion on how complicated it may be to handle a bulk of complaints, see Patetta (2010).
Hodges (2010: 373) (“In simple terms, a judicial collective damages procedure will only be
effective if there exist both an aggregating procedure and liberal financial rules, such that parties (or
more likely their lawyers) will have sufficient economic incentives to find it attractive. Ironically, a
collective judicial procedure without attractive financial returns for intermediaries will not deliver
the policy objectives, but as the financial returns increase, so does the risk of abuse, and adverse consequences become inevitable.”); Cf. Leskinen (2011: 112) (“[T]he possibility of large contingency
fees provides incentives to lawyers to bring damages actions and is an essential prerequisite of the
functioning of the class action mechanism, in particular, when the individual claims are small”).
may have non-economic interests in organizing the group (as civil organizations
usually have), economically speaking, the group representative’s expected income
and expected costs cannot be equilibrated in the absence of an appropriate risk
An alternative solution could be if group members contributed to the organizational costs through paying a fee when joining the group (member contributions).
Nonetheless, this solution seems to be both legally unfeasible in opt-out collective
proceedings and economically inefficient. First, opt-out collective proceedings may
raise constitutional concerns in Europe because they establish power of attorney
without authorization.35 The main argument against these concerns is that the optout mechanism is justified, because it confers solely advantages on group members36 :
if the group representative wins, group members receive redress, if he fails, group
members do not have to pay anything.37 This argument would be lost and constitutional concerns would emerge if group members were held liable for the costs of
an action they did not expressly consent to. Second, demanding a contribution from
members would be inefficient because it would place the litigation risk on the less
informed party. Theoretically, the risk of litigation may be placed either on the group
representative or on group members. Group representatives are in the best position to
assess the probable outcomes and the risks of the proceedings; hence, it is reasonable
to place the risk of litigation on them, compensating them for this hazard through an
appropriate risk premium.
The above reasoning holds true also for traditional legal costs. Under the general
principle, group members should advance their legal costs and should reimburse
the defendant for his legal costs if he wins. Alternatively, at least as to opt-out
proceedings, the same constitutional and economic arguments may be applied here
as in case of organizational costs. Cost-bearing in case of power of attorney without
authorization (that is, opt-out collective actions) may raise constitutional concerns;
furthermore, the group representative is in the best position to assess the potential
risks attached to litigation, thus, it is more efficient to place this risk on the group
representative and to provide him with an appropriate risk premium.
In summary, in order to make collective actions workable, measures are to be
taken in two directions. Organizational costs should be lessened and the risk of not
being reimbursed for the legal costs and of being held liable for the legal costs of the
defendant should be tackled through an adequate risk premium.
Leskinen (2011: 87). For France, see e.g. Conseil Constitutionnel Decision No. 89–257DC,
25 July 1989 (Fr.), reproduced in Magnier and Alleweldt (2008) For Hungary, see e.g. Hungarian
Constitutional Court’s decisions in Alkotmánybíróság (AB) (Constitutional Court) 4 January 1994,
1/1994. (I. 7.); Alkotmánybíróság (AB) (Constitutional Court) 17 April 1990, 8/1990. (IV. 23.).
36 See Stuyck (2009: 491), Ioannidou (2011: 79–80).
37 On the argument that collective proceedings improve access to justice, see Ioannidou (2011:
71–73).
This chapter described the hurdles that may prevent the individual enforcement of
small claims and lead to suboptimal enforcement. It was demonstrated that collective litigation is more efficient in several ways than individual enforcement, and in
numerous cases it is the only feasible enforcement mechanism. Given that they generate economies of scale and tackle the problem of positive externalities, collective
actions may be a reasonable possibility also in cases where the costs of individual
action are prohibitively high.
Having shown that in certain cases collective litigation is more efficient, it was
asserted that the absence of the spontaneous emergence of collective actions is chiefly
due to the costs of group organization, which qualify as transaction costs and normally
cannot be shifted onto the losing defendant. Since organizational costs are crucially
important, the regulation should primarily address this issue.
Organizational costs could be considerably lessened with the introduction of the
opt-out system. In the opt-in system, the problem of organizational costs could be mitigated through the simplification of group organization (e.g. simplifying the administrative burdens and formal requirements related to declarations of adherence). Irrespective of whether an opt-out or an opt-in system is chosen, organizational costs
should be included in the scope of the “loser pays” cost-shifting rule (the losing
defendant should be obliged to reimburse the group representative not only for legal
costs but also for organizational costs).
For the group representative, it is economically rational to engage in group organization only in exchange for an appropriate risk premium, which is not afforded
under the general principles of civil procedure in Europe. Economically speaking,
the group representative’s expected income and expected costs cannot be equilibrated
in the absence of an appropriate risk premium.
Azar-Baud MJ (2012) La nature juridique des actions collectives en droit de la consommation.
Revue européenne de droit de la consommation 1:3–28
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Antitrust Litigation. Competition Law Review 8(1):29–58
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entrepreneurial lawyers. University of Pennsylvania Law Review 155:103–164
Hodges Ch (2008) The reform of class and representative actions in European Legal Systems. Hart
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collective redress. Eur J Legal Stud 7(1):114–139
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von Großschäden auf der Basis des Kapitalanleger-Musterverfahrensgesetzes. Mohr Siebeck,
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Rev 8(1):87–121
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Major European Objections and Fears
Against the Opt-Out System: Superego,
This chapter presents and analyses the objections against class actions and inquires
why the appearance and reception of collective actions, especially the notion of
“representation without authorization”, have sparked furious opposition in Europe.
It addresses and refutes the major arguments and fears against the opt-out system
(unconstitutionality, European traditionalism, technical difficulties and abusive litigation), and inquires whether these are genuine scruples or pretexts veiling a deeper
aversion against class actions. It is argued that the headspring of Europe’s instinctive
resistance against American class actions and the subconscious reason why it is so
difficult to reconcile the “Copernican turn” of class actions with European traditionalism are the taboo of party autonomy and the state’s entrenched prerogative to
enforce the public interest. An inquiry into the deep layers reveals that the European
reaction may be traced back to the peculiar European thinking about the relationship
between the market (or private enterprise) and the public interest and the continental
notion that the enforcement of the public interest is the inalienable prerogative of the
Class actions, and in particular the notion that group members may be represented
without express authorization, have been criticized from four angles. First, “representation without authorization” is claimed to be unconstitutional due to its encroachment on private autonomy and, second, to be alien to continental legal traditions.
Third, the practical feasibility of class actions has been impugned with reference
to technical difficulties of identification and proof. Fourth, class actions have been
claimed to inflict significant social damages due to their being prone to abusive
litigation (litigation boom and blackmailing potential).
the repetitious European debate on collective actions, see Nagy (2015).
SpringerBriefs in Law, https://doi.org/10.1007/978-3-030-24222-0_3
3 Major European Objections and Fears Against …
3.1.1 Constitutional Concerns: Private Autonomy and Tacit
The opt-out system may raise constitutional concerns, since “representation without
authorization” may impair group members’ private autonomy, which consists, in this
context, of the right to decide whether or not to enforce a claim and how to enforce
it.2 However, there are quite a few compelling arguments that suggest that the opt-out
scheme, as far as small claims are concerned, should not be outright unconstitutional.
Although the collective action may certainly be shaped in a manner that goes counter
to constitutional requirements, the constitutional concerns relating to small claims
are mainly an optical illusion.
European traditionalism is often wrapped up in constitutional parlance. In Germany, opt-out class actions appear to have been rejected, among others, for constitutional reasons: it has been argued that representation without authorization may
raise serious constitutional concerns, e.g. it may impair the right to a hearing (Recht
zum rechtlichen Gehör) and the right of disposition (Dispositionsgrundsatz).3 While
it could be argued that silence should be regarded to imply acceptance, such a legal
consequence may be entailed only by proper notice and it has been highly questionable whether constructive knowledge would suffice in this regard.4 The foregoing
constitutional concerns have been taken so seriously that in 2005 the German Federal
Cartel Office (Bundeskartellamt), notwithstanding the very strong policy for competition law’s private enforcement, discarded the idea of opt-out collective actions
apparently because it was said to restrict the right to a hearing and to violate the
principle that the party is the master of his own case (right of disposition).5
In the context of French law, it has been consistently referred to the principle
of “nul ne plaide par procureur” (“no one pleads by proxy”).6 According to this
entrenched principle of French civil procedural law, for having standing, the plaintiff
has to have a legitimate interest in the case and, to be legitimate, the interest must
be direct and personal; as a corollary, all the persons involved in the lawsuit must be
identified and represented in the procedure.7
It is true that mandatory representation, that is, representation without authorization not supplemented by the right to opt-out, seems to be irreconcilable with
constitutional requirements. For instance, in Spain, where the judgment’s res judicata
effects may extend to non-litigant group members, it has been convincingly argued
Communication Towards a European Horizontal Framework for Collective Redress,
COM (2013) 401 final, p. 11. See Strong (2013: 239–247) (Referring to these considerations as the
plaintiff’s “individual participatory right”.).
3 See Greiner (1998: 189), Fiedler (2010: 237–245), Stadler (2011: 172–173), Lange (2011:
129–171), Geiger (2015: 245–255).
4 Stadler (2015: 569–578). For arguments that public notice in collective actions does not violate
the principle of disposition, see Halfmeier (2012: 183).
5 Bundeskartellamt (2005: 30–31).
6 Mazen (1987: 383–384).
7 Poisson and Fléchet (2012: 166).
3.1 European Objections Against Class Actions: Scruples or Pretexts?
that absent a specific statutory provision, the right to opt out arises from the constitutional principles of due process and access to justice.8 However, representation
without authorization supplemented with the right to opt out may merit a different
treatment. It is noteworthy that this is in line with the US Supreme Court’s stance that
class actions based on representation without authorization meet the requirements
of due process as long as members have the right to opt out.9
It has to be noted that a comparable set of constitutional arguments may be lined
up for the introduction of collective actions.
First, in the absence of a collective litigation mechanism, numerous small claims
would not get to court10 and, hence, the collective action confers solely benefits on
group members (provided they do not run the risk of being liable for the defendant’s
legal costs in case the group representative fails to win the action). It would be
perverse to refer to the impairment of private autonomy in a case characterized by
obligee inertia,11 where the law does not ensure the claim’s practical enforceability.
Second, opt-out systems embed, by definition, the right to opt out. While mandatory representation (that is, when group members are compelled to be part of the
group and cannot opt out) may obviously go counter to the right to private autonomy
(that is, the right to decide whether or not to sue, and how to enforce the claim), there
is no “forced membership” in case of an opt-out system. Group members can leave
the group without any further. The opt-out scheme merely reverses the mechanism
of adherence and infers assent from silence. In principle, a group member has to
submit a declaration, if he envisages being part of the action. In the opt-out system,
a group member has to submit a declaration, if he does not want to be part of the
action. The group member makes the decision and since experience shows that the
vast majority of group members does not opt out, arguably, it is reasonable to reverse
the mechanism of adherence.12
It has to be noted that the opt-out system is much more constitutional and preserves private autonomy much better than the EU Injunction Directive13 covering
17 consumer protection Union acts.14 The Directive authorizes various entities to
launch proceedings for a declaratory judgment or injunction on behalf of a class of
8 For a comprehensive analysis on the Spanish class action mechanism, see Mieres (2000). See also
Piñeiro (2009: 61–88), Jiménez (2008), López (2001), Estagnan (2004: 9–10).
Petroleum v Shutts 472 US 797, 813–814 (1985).
10 Udvary (2015: 242–244).
11 See Eisenberg and Miller (2004: 1529, 1532), Issacharoff and Miller (2009: 179, 203–206),
Issacharoff and Miller (2012: 37, 60).
12 See Eisenberg and Miller (2004: 203–206), Issacharoff and Miller (2012: 60).
13 Directive 2009/22/EC on injunctions for the protection of consumers’ interests, [2009] OJ L
110/30. See Trstenjak (2015: 689–691).
14 See Annex I of the Directive, last amended by Directive 2019/771 on certain aspects concerning
contracts for the sale of goods, amending Regulation (EU) 2017/2394 and Directive 2009/22/EC, and
repealing Directive 1999/44/EC (OJ L 136, 22.5.2019, p. 28). The Annex currently lists the following
17 Union acts: Directive 85/577/EEC to protect the consumer in respect of contracts negotiated away
from business premises (OJ L 372, 31.12.1985, p. 31); Directive 87/102/EEC for the approximation
of the laws, regulations and administrative provisions of the Member States concerning consumer
credit (OJ L 42, 12.2.1987, p. 48); Directive 89/552/EEC on the coordination of certain provisions
9 Philipps
unidentified consumers without the need for any individual authorization or assent,
and, theoretically, it does not even make it possible for group members to leave the
group. This means that group members cannot opt-out even if they want to; they are
stuck in the group. Still, the constitutionality of the Injunction Directive has never
Third, it has to be noted that while the right of disposition is constitutionally
protected, access to justice is equally a constitutional fundamental right. The purpose
of collective litigation is to make practically unenforceable rights a reality.
Whatever the strength of these points may be, interestingly, the rigid unconstitutionality arguments have found no reflection in the constitutional case-law. This
suggests that while certain limits do apply, opt-out mechanisms are not outright
unconstitutional. While representation without authorization does call for a justification, it may be warranted in small-value cases, which would very likely not be brought
to court anyway. The cases that can be raised from national constitutional laws, used
as arguments that the opt-out scheme is irreconcilable with national constitutional
requirements, can be distinguished from the enforcement of small pecuniary claims
in an opt-out collective procedure. In fact, in 2014 the French Constitutional Council (Conseil constitutionnel) confirmed the recently introduced French regulatory
regime, which, in certain points, has salient opt-out features.
The European Court of Human Rights (ECtHR) addressed the question of representation without authorization15 in Lithgow v. United Kingdom.16 The case emerged
in the context of the UK’s expropriation of a British company. To avoid the flood
laid down by law, regulation or administrative action in Member States concerning the pursuit
of television broadcasting activities: Articles 10 to 21 (OJ L 298, 17.10.1989, p. 23); Directive
90/314/EEC on package travel, package holidays and package tours (OJ L 158, 23.6.1990, p. 59);
Directive 93/13/EEC on unfair terms in consumer contracts (OJ L 95, 21.4.1993, p. 29); Directive
97/7/EC on the protection of consumers in respect of distance contracts (OJ L 144, 4.6.1997,
p. 19); Directive 1999/44/EC on certain aspects of the sale of consumer goods and associated
guarantees (OJ L 171, 7.7.1999, p. 12); Directive 2000/31/EC on certain legal aspects on information
society services, in particular electronic commerce, in the internal market (Directive on electronic
commerce) (OJ L 178, 17.7.2000, p. 1); Directive 2001/83/EC on the Community code relating
to medicinal products for human use: Articles 86 to 100 (OJ L 311, 28.11.2001, p. 67); Directive
2002/65/EC concerning the distance marketing of consumer financial services (OJ L 271, 9.10.2002,
p. 16); Directive 2005/29/EC concerning unfair business-to-consumer commercial practices in the
internal market (OJ L 149, 11.6.2005, p. 22); Directive 2006/123/EC on services in the internal
market (OJ L 376, 27.12.2006, p. 36); Directive 2008/122/EC on the protection of consumers in
respect of certain aspects of timeshare, long-term holiday product, resale and exchange contracts
(OJ L 33, 3.2.2009, p. 10); Directive 2013/11/EU on alternative dispute resolution for consumer
disputes (OJ L 165, 18.6.2013, p. 63): Article 13; Regulation 524/2013 on online dispute resolution
for consumer disputes (Regulation on consumer ODR) (OJ L 165, 18.6.2013, p. 1): Article 14;
Regulation 2018/302 on addressing unjustified geo-blocking and other forms of discrimination
based on customers’ nationality, place of residence or place of establishment within the internal
market and amending Regulations 2006/2004 and 2017/2394 and Directive 2009/22/EC (OJ L 60 I,
2.3.2018, p. 1); Directive 2019/770 on certain aspects concerning contracts for the supply of digital
content and digital services (OJ L 136, 22.5.2019, p. 1).
15 For an analysis on the ECtHR case-law, see Strong (2013: 243–245).
16 Case no. 9006/80; 9262/81; 9263/81; 9265/81; 9266/81; 9313/81; 9405/81 Lithgow v. United
Kingdom, 8 July 1986, [1986] 8 ECHR 329.
of individual actions, the law on nationalization provided for the appointment of
a “stockholders’ representative”, who was to be elected by the shareholders or
appointed by the government and whose power of attorney to claim compensation
precluded group members’ individual actions. In other words, the scheme established
mandatory representation without authorization where group members were forced
to join and could not opt out.
The ECtHR proceeded from the proposition, as established in Ashingdane,17 that
right of access to the courts secured by Article 6 para. 1 (art. 6-1) is not absolute but may
be subject to limitations; these are permitted by implication since the right of access ‘by its
very nature calls for regulation by the State, regulation which may vary in time and in place
according to the needs and resources of the community and of individuals’.
The limitations may not impair the very essence of the right and need to “pursue
a legitimate aim” and there needs to be “a reasonable relationship of proportionality
between the means employed and the aim sought to be achieved.”18 As to the scheme
at stake, the ECtHR came to the conclusion that these conditions were met. The very
essence of the right to a court was not impaired,19 because individual rights were
(indirectly) safeguarded: the group representative was “appointed by and represented
the interests of all” group members and individual group members could seek remedy in case the representative breached one of his duties. This conclusion was not
undermined by the fact that the group members’ right to control the representative
was very limited and it was not the individual shareholders but their community who
was entitled to exercise these rights.20 Furthermore, the Court held that the scheme
“pursued a legitimate aim, namely the desire to avoid, in the context of a largescale nationalization measure, a multiplicity of claims and proceedings brought by
individual shareholders” and there was “a reasonable relationship of proportionality
between the means employed and this aim.”21
The above jurisprudence was confirmed in Wendenburg.22 Here, in the context of
a procedure before the German Federal Constitutional Court (Bundesverfassungsgericht), the ECtHR, referring to Lithgow, held that while “the applicants were barred
from appearing individually before that court”, “in proceedings involving a decision
for a collective number of individuals, it is not always required or even possible that
every individual concerned is heard before the court.”
National constitutional courts followed a very similar line of reasoning.
In the early ‘90s, due to the particular historical situation, the Hungarian Constitutional Court had the chance to adjudicate cases centering around representation
without authorization. In 1989, the socialist regime collapsed in Hungary and the
no. 8225/78 Ashingdane v. United Kingdom, 28 May 1985, [1985] ECHR 8, Series A no.
93, para 57.
18 Lithgow, para 194.
19 Para 196.
20 See Footnote 18.
21 Para 197.
22 Case no. 71630/01 Wendenburg and Others v. Germany, 6 February 2003, [2003-II] ECHR 353.
country adopted a new constitution,23 while the laws adopted beforehand persisted.
Although the parliament tried to weed Hungarian law of the provisions that were
not reconcilable with a constitutional democracy, some reminiscences remained and
had to be quashed by the Constitutional Court itself. One of these was the rules of
socialist law that conferred mandatory representation without authorization on the
attorney general and trade unions. These entities could launch civil proceedings even
against the obligee’s will. These laws had a very peculiar feature: the right of representation of these entities was general and mandatory, that is, they not only lacked
the party’s authorization, but the represented person could not opt out and terminate
his own action. These rules were struck down by the Constitutional Court. However,
the court also established that, if justified, “representation without authorization” can
be constitutional. Albeit that these cases involved no class actions, they provide clear
guidance also as to the opt-out principle’s constitutionality.
In Case 8/1990 (IV.23.) AB, the Hungarian Constitutional Court dealt with trade
unions’ right to represent an employee without authorization. The constitutional
concerns were entailed by the trade union’s “mandatory power of attorney” and not
by a “presumed power of attorney.” The legislation did not prevent trade unions
from exercising the right of representation against the employee’s will, which were
authorized to intervene also in matters where the employee was not a member of the
trade union. The Constitutional Court suggested that the legislator may maintain the
trade union’s right of representation in relation to its own members.
In Case 1/1994. (I.7.) AB, the Constitutional Court dealt with the attorney general’s
power to act on behalf of private parties. The Court held that party autonomy (right of
disposition) embraces both the liberty to act and the liberty not to act; the attorney general’s all-pervasive power to sue and appeal without the party’s express assent restricts
the party’s constitutional rights and needs to be examined whether this restriction is
necessary and proportionate. In this case, the Constitutional Court came to the conclusion that there were no constitutionally acceptable legitimate ends justifying the
attorney general’s blanket power to act on behalf of the party. Here again, the most
important source of concern was the attorney general’s “mandatory power of attorney”, which—if warranted by an important national or economic interest—could be
exercised also against the party’s will. At the same time, the Constitutional Court
did not question the attorney general’s power to sue in cases where the obligee was
not able to protect his rights. Quite the contrary, the Court held that in such cases
representation without authorization is considered an inevitable restriction of party
autonomy (right of disposition) and
the protection of the subjective rights of the party who is unable to enforce or protect his
rights is the constitutional obligation of the state. Accordingly, the state has to ensure that in
such cases one of its organs acts for the sake of protecting the rights of the individual.
23 Technically,
it amended the old constitution comprehensively. However, in essence, the amendment, in fact, created a new constitution.
In sum, the case-law of the Hungarian Constitutional Court suggests that representation without authorization may meet the constitutional requirements, if it is
justified by a legitimate end. Both the absence of a “mandatory power of attorney”
and the party’s right to opt out point towards compliance with the constitutional
requirements. While the above cases give no guidance as to whether public notice
is sufficient or group members need to be informed individually about the collective
action and the right to opt out, they indicate that if the party is unable to protect his
rights, the state is even obliged to intervene.
The French Constitutional Council (Conseil Constitutionnel) examined the question of representation without authorization24 first in 1989 in the context of trade
unions’ right to launch proceedings on behalf of their members, and recently it scrutinized the de facto opt-out mechanism introduced by the French legislator in 2014.
The matter concerning group actions initiated by a trade union on behalf of its
members became famous in the European scholarship on class actions and had been
referred to as an authority to justify t