Weil, Gotshal & Manges (London) LLP

US v Them

Question

Is it true that US-style class action litigation is being introduced into the European Union?

Answer

In our view, this is not the case. However, it is true to say that over the past year or so there has been widespread discussion in relation to class actions (or collective redress) both at EU level and, in certain member states, at the domestic level. It seems clear that this will be a growth area and one in relation to which businesses should be aiming to keep abreast of the changing landscape. 

What is a class action?

Broadly speaking, a class action is a procedural device used in litigation to determine rights and remedies for large numbers of claimants whose cases involve common questions of law or fact. Types of case in which class actions are common are: consumer claims, product liability, personal injury, antitrust and those concerning shareholder rights. 

Class actions have historically been most prevalent in the United States, where procedures and mechanisms for claimants to seek collective redress are more developed and provide a greater inducement to claimants to bring cases than the procedures available to potential claimants in the European Union. 

In the European Union the availability of procedures for collective redress is patchy, with only around half of all member states providing mechanisms for collective redress. These vary widely in form, substance and efficacy. By way of example, the existing mechanisms in England and Wales have been used relatively infrequently and often with little success. Forms of class action have been introduced by other member states, such as Spain and, more recently, Italy. However, there is still a lot of room for improvement in terms of the level of access to justice for consumers.

What characterises the US-style class action?

Key characteristics of the US-style class action include:

  • an opt-out rather than an opt-in system, meaning that, as a general rule, potential claimants are automatically swept up into a class and do not have to decide positively to join the action as claimants (this is in contrast to the present English system which is an opt-in system);
  • a dedicated plaintiff bar driven by the absence of any upper limit on contingency fees (ie, no-win no-fee type arrangements where the level of legal fees recovered by a law firm will be contingent on the successful outcome of the case);
  • the absence of a 'loser pays' rule. Such a rule will often act as a successful brake on the bringing of frivolous claims;
  • the wide availability of punitive damages (ie, damages which exceed the actual loss suffered in the claim); and
  • the wide availability of trial by jury (juries often being sympathetic to claimants and hostile to business with a propensity to making high awards of damages).

Many commentators, both in the United Kingdom and the rest of the European Union, agree that the combined characteristics of the US system lead to excess in terms of: the number of claims brought; the (often) weak legal and or factual basis for those claims; and the level of settlements and/or awards of damages. As a result, the US system has been heavily criticised during the debate on how to improve collective redress for consumers.

What are the possible changes ahead?

Notwithstanding the distaste for US-style class actions, change undoubtedly lies ahead. Papers have been published recently by the Office of Fair Trading and the Civil Justice Council which suggest the possible introduction of an opt-out system in England and Wales. The issue of third-party funding of litigation is another hot topic in England and Wales (see "Coming to the Party"), which is closely linked to the area of collective redress as funding of such actions has historically been hard to come by for potential claimants.

Further, present indications from the European Union are that changes are required in order to eliminate the current 'passport lottery' in the availability of collective redress mechanisms in different member states. A major consultation in this area is being undertaken by the Directorate General for Health and Consumer Protection, while the Directorate General for Competition will be publishing a White Paper on Private Enforcement in relation to Antitrust Claims in Spring 2008. 

So, while US-style class actions are definitely out of fashion, the debate still has some way to go.

Lianne Craig is an associate and Katherine Durkacz is a trainee at Weil, Gotshal & Manges.

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