EC’s Recommendation on collective redress mechanisms
→ Eva-Maria Kostenzer
→ Maximilian Anton Raschhofer
In June 2013, the European Commission (EC) adopted recommendation 2013/396/EU on common principles for injunctive and compensatory collective redress mechanisms.
The recommendation defines a collective redress as a “legal mechanism that ensures a possibility (i) to claim cessation of illegal behaviour”, or (ii) “to claim compensation collectively by two or more natural or legal persons claiming to have been harmed in a mass harm situation or by an entity entitled to bring a representative action”. The EC points out that collective redress needs to be clearly distinguished from the so-called “class actions” that are common in the US legal system.
In particular, collective redress is aimed at facilitating access to justice in cases in which the losses at an individual level are rather low. The recommendation is based on the assumption that in such cases, the injured parties often would not consider it worthwhile pursuing an individual claim. Although procedures to file collective claims for compensatory relief have been introduced in some Member States, the EC sees a necessity to recommend common principles as the existing procedures vary widely among the Member States.
Some of the Main Principles
Collective redress systems should be based on the “opt-in” principle, under which claimant parties are formed through directly expressed consent of their members.
The Member States should ensure that the representative entity or the group of claimants have the possibility to inform potential claimants about their intention to pursue an action. The dissemination methods should take into account the particular circumstances of the mass harm situation concerned, the freedom of expression, the right to information, and the defendant’s right to defend his or her reputation before his or her responsibility is established by the final judgment of the court.
In order to avoid an abuse of the system, the court shall verify the claim’s admissibility at the earliest possible stage of litigation. Furthermore, the entities that are representing claimants have to be of non-profit character. Punitive damages should be prohibited.
Third-party funding of compensatory collective redress should be allowed under certain conditions. Basing remuneration on the amount of the settlement reached or the compensation awarded is to be prohibited, unless that funding arrangement is regulated by a public authority to ensure the parties’ interests.
Current legal situation in Austria
The Austrian Civil Procedure Act (ZPO) does not expressively mention terms such as “collective redress” or “class action”. However, the current legal framework in Austria does already provide the possibility to bundle many similar legal claims into a single court action. For instance, such mechanisms provided under Austrian law are commonly used in the area of investor protection.
Under Austrian law, each injured party may assign his/her claim for compensation to another person or legal entity. Therefore, in practice such claims are often ceded to organizations representing the collective interests of consumers as listed in section 29 of the Austrian Consumer Protection Act (KSchG). Subsequently, these organizations file a single lawsuit for all individual claims that are admissible, provided that the court seized has jurisdiction over all claims (section 227 ZPO).
This course of action also has the advantage of facilitating access to the Austrian Supreme Court. An appeal to the Austrian Supreme Court is not admissible if the amount in dispute is below EUR 5,000. However, this rule does not apply if the claimant is an organization according to section 29 KSchG.
The recommendation asks Member States to put in place the proposed measures within two years. Subsequently, the EC will evaluate whether further measures are needed. When doing so, the EC should keep in mind that it is highly controversial whether the EU actually has any legislative competence to regulate collective redress mechanisms.
As the recommendation is non-binding, the proposals are rather vague and leave various open questions regarding their implementation, eg with regard to the verification of the admissibility “at the earliest possible stage”. The “opt-in” principle implies that the defendant may be confronted with further claims. On the other hand, an “opt-out” model may be unconstitutional in some Member States. Furthermore, the public information on a collective redress action can potentially damage a company’s reputation. The information should therefore not be disseminated before the court has verified the claim’s admissibility. Finally, one can question whether there actually is any need to regulate collective redress mechanisms on a European level.