A Different Class

A class action is a mechanism which allows a large number of plaintiffs, with common interests, to pursue their claims in a single lawsuit brought by a representative plaintiff.

Other than the named plaintiff, the other class members are usually absent, but, once the US court has certified a case to be a class action, the plaintiff's lawyers have to provide notice to all class members. Once they receive such notice, class members have a limited period of time in which to decide whether to 'opt out'; that is not participate in the class action.

CLASS ACTIONS

Since their introduction in 1938, class actions have grown exponentially in the US. Commentators agree that the reason for this growth is a combination of several factors including the availability of contingent fees, allowing prospective plaintiffs to find lawyers who will be paid out of the proceeds of the claim if it is successful; the fact that the loosing party does not have to pay significant legal costs to the winning party; the availability of punitive damages, which encourages or leads to very large damages awards; the trying of civil cases before juries and the existence of a well-organised and competent plaintiff bar.

Recently there has been significant concern that class actions may also grow in Europe. Traditionally, however, the European approach has been very different to that of the US.

Although most European jurisdictions have rules which allow the easier prosecution of multiple claimant actions, the main European jurisdictions (England and Wales, France, Germany, Spain, Italy, the Netherlands and Sweden) operate an 'opt-in' rather than 'opt-out' system. This means that all claimants have to take positive steps if they are to be included in the class or 'group'.

In many of these jurisdictions group actions are normally brought in the name of associations of consumers, either pre-existing or set up for the purposes of the litigation and there are restrictions in the recovery of damages, either prohibitive (Italy) or requiring subsequent individual legal proceedings (the Netherlands).

GROUP LITIGATION

In England and Wales 'group litigation' has always been available, allowing the courts through the issue of Group Litigation Orders (GLO) to facilitate the management of cases involving a very large number of claimants or defendants, where the issues of fact or law, are common or related.

It requires, however, unlike the US, for claimants or defendants to actively seek to participate in the group. The court managing the process often chooses a particular case amongst the group cases to act as a test case and judgements will be binding on all parties that appear as part of the group at the time a judgement is given.

ACTIONS ELSEWHERE IN EUROPE

In Germany a new law was passed on November 2004 allowing for the more effective prosecution of 'securities class actions'. This is an opt-in system, like in England, where each claimant must file a lawsuit individually, although the common issues of fact or law are heard in one test case but with a decision being binding on all claimants. However, in order to recover damages, individual claimants have to institute subsequent individual proceedings.

This legislation will remain in force for a test period of five years until the end of October 2010 after which there will be a decision whether to extend this group litigation facility to other parts of the civil code. It is expected that there will be an extension into areas such as product liability, anti-trust, discrimination and mass accidents.

In France, the President of the Republic had made statements indicating that the government would further the development of group litigation in order to facilitate access to justice for small claimants who might, on their own, be unable to afford to pursue claims.

On 8 November 2006, however, the Finance Ministry in France introduced a bill allowing very limited group litigation in the context of a new consumer protection law. Such claims will have to be within a maximum limit of €2,000 and will be on the basis of an opt-in system, as in England and Germany.

In Spain group litigation was introduced in 2001 and allows for both associations and individuals to bring claims. Parties generally favour this form of consolidating proceedings because it leads to the avoidance of inconsistent judgements and to procedural efficiency. Commentators claim that since the introduction of group litigation, even in this limited form, there has been an increase in out-of-court settlements.

In Sweden there is provision for class claimants, but not class defendants. It is again as all other European systems, an opt-in system, requiring individual parties to take positive steps to join in the proceedings. Judgement is binding only on those who opt-in but it does allow for the award of damages. It also contains plans to accommodate settlement on behalf of the whole class.

In Italy, unlike England, Germany, France, Sweden and Spain, there are limited collective actions under the Consumers' Code where only registered consumer associations (and not individuals) can represent group interests in court seeking to limit or prohibit or injunct anti-consumer behaviour, although they cannot recover damages.

Following the high-profile cases of Palmerlat and Cerio, many experts in Italy pointed out that the lack of more meaningful group litigation rules deters small investors from pursuing worthwhile claims because of cost and the difficulty of collecting evidence. Interestingly, also, financial institutions claim that they favour class actions because they bring about a more transparent securities market and can provide for an efficient mechanism for the resolution of disputes involving very large numbers of investor claimants in an efficient and cost-effective manner.

In the Netherlands, the Dutch civil code allows for collective actions by victims of tort. It requires commonality of interests and the existence of an association set up to protect those common interests. There is no automatic right to claim damages, though declaredly judgements become the basis of individual claims subsequently. There is a bill (the collective settlement mass damages bill 2005) currently under discussion which would allow claimants to join together to negotiate resolution of collective claims and to apply to court for recognition of any settlement.

THE FUTURE OF CLASS ACTION

Generally, on the Continent, class actions are limited in their scope when compared to the US. There is, however, current excitement in Europe largely due to the observation of development in the US where class actions have been good business for both plaintiffs' and defendants' lawyers. Consumer groups see opportunities for improving their position and that of their members. For many it is a question of access to justice, a fundamental constitutional right.

Although continental jurisdictions strongly wish to avoid the excesses of the US group litigation culture with aggressive plaintiff lawyers, group litigation has an important role to play in allowing small claimants to obtain justice and compensation by joining force with others; and, at the same time, allowing defendant corporations the opportunity to defend, or settle if appropriate, large claims in a disciplined, organised and economical manner.

Although we do not expect to see a proliferation of group litigation within the various continental jurisdictions, I believe that the commission green paper - 'damages actions for breach of EC anti-trust rules', will accelerate the discussion of the benefit of the implementation of a common minimum level of group litigation rules. Hopefully this will happen by way of directive (rather than regulation) which would allow some discretion to each member state on how to implement any measures.

In any event, businesses should welcome any systems which would lead to a quicker, more effective, more certain and more economical resolution of disputes which could otherwise be a resource drain for many years.