One of the most interesting global legal developments has been the rise in recent years of collective redress mechanisms outside the United States, a phenomenon on which I have commented in the context of collective investor actions. The provision for collective or representative actions has expanded in a number of other contexts as well, including in particular in the consumer context. On April 11, 2018, the European Commission introduced a proposal – as part of what it called a “New Deal for Consumers” – that would introduce a European collective redress right for consumers. This proposed collective action mechanism is subject to a number of procedural protections. Nevertheless, the proposal, if adopted, would represent a significant advance in the development of collective redress mechanisms and rights in Europe. The European Commission’s April 11, 2018 press release about the proposal can be found here.



The European Commission’s New Deal for Consumers proposal builds on a number of existing initiatives. Of particular interest to this blog’s readers, the Commission, in its Fact Sheet about the proposal, says that the proposal is a “follow-on” to the Commission’s 2013 Collective Redress Directive. In this prior directive, member states were advised to adopt collective redress mechanisms and report back to the Commission by July 2017. Upon review of the member states’ responses to the prior directive, the Commission found (as it said in the Explanatory Memorandum for its latest initiative) that “a number of Member States still do not provide for collective compensatory redress mechanisms tailored to mass harm situations.”


The provision for the collective redress mechanism in the latest initiative is borne in part out of the recognition of the insufficiency of the procedures available in response to the VW Dieselgate situation. The Commission’s press release says that “Recent cross-border consumer cases, such as the ‘Dieselgate’ scandal which affected consumers all over the EU, have confirmed that European consumer law should be strengthened.” The latest initiative is calculated to “ensure that all European consumers fully benefit from their rights, by helping Member States to enforce existing rights better, and by modernizing redress systems.”


The Collective Redress Proposal

Among other features, the latest Commission proposal would allow qualified entities to launch representative actions on behalf of consumers. Prospective representative groups, such as for example a consumer organization or independent public bodies, will be qualified under the supervision of judicial or administrative authorities in the Member States. The Commission recognized that in some Member states it is already possible to launch collective action in courts, but now this possibility is available in all EU countries.


In its Press Release and fact-sheet, the Commission took great pains to emphasize that the procedural mechanism is its recommending is “different from U.S.-style class actions.” Among other things, the proposal would require all prospective representative entities to fully disclose financing arrangements, including in particular any third-party litigation financing, in order for a determination of whether or not the representative group is subject to conflicts of interest. The proposal also specifies that the Member States are to monitor on a regular basis whether the designated qualified entities continue to comply with the criteria.


As a safeguard against the possibility of frivolous litigation, the Commission’s proposal specifies that a representative action for redress will be possible only based on a final decision by a national court or authority that establishes that the target company has breached the law. A final decision that a firm has infringed the law will be irrefutable evidence of violation with the same member country and in another member state a rebuttable presumption that the infringement has occurred.


The proposal specifically contemplates the possibility of cross-border actions joining in a single procedure the interests of consumers from several EU countries. Cross-border actions, the Fact Sheet says, could become more efficient, allowing a qualified representative entity representing consumers in different Member States to join forces with a single representative action.


The proposal actual sets out two  proposed procedures. One would be for situations in which a limited group of people suffered comparable harm. The second would be for low-value cases in which many consumers suffered a small loss which would be hard to compensate. In the first case, consumers would be able to collectively sue and receive compensation. In the second category, any recovery would go to a public good that benefits consumers.


The proposal would also substantially expand the list of EU laws the alleged violation of which could result in actions. In addition to typical consumer protection laws, the list would cover a wide range of subjects, including (among others) EU laws relating to product liability, healthcare, data protection, financial services, passenger rights, tourism, energy, the environment, telecommunications and media services.


The EU also separately proposed  EU-wide fines of up to 4 percent of a company’s annual turnover in each member state for companies found to have engaged in widespread consumer violations.


The Proposal is subject to further review and approval by the European Parliament and the Council of the European Union and if adopted Member States would then have  an additional 18 months to adopt the law’s requirements into their national legal systems and another six months to apply them.



The European  Commission’s consumer collective redress is just the latest initiative supporting the development of collective redress mechanisms. I have previously discussed (here) the global rise of collective investor actions. The pace and direction of these various initiatives are interesting on a number of levels, but of particular interest to me is that this moved toward collective procedural mechanisms are coming about despite near-universal disdain for the U.S. style class-actions.


I am fortunate to have been able to travel around the world for various professional meetings in recent years. Often I am the only American in the room. I have become quite accustomed to hearing the locals express contempt for the U.S. litigation model. But what has happened over the years is that slowly but surely and despite the disdain for U.S. litigation procedures, many countries have adopted procedural reforms that reflect aspects of U.S. style litigation, even U.S. class action litigation. Often these reforms arise when local investors aggrieved by a corporate scandal push for legislative reform so that they have some procedural mechanism for redress – as it seems the Dieselgate scandal has done here.


As I noted above, in this instance the European Commission was very careful to emphasize that it is not proposing a U.S.-style class action, as is the universal practice when legal authorities are initiating collective action proposals. Indeed, the proposed collective action mechanism is subject to a number of significant limitations. Nevertheless, in its institution of a European-wide collective action mechanism, the proposal does represent a very significant development. Countries that in the past have had no or limited provision for collective redress will now have that procedural alternative available.


I suspect many readers are impatient with me for insufficiently acknowledging that the Commission’s proposal relates only to consumer class actions. The new mechanism is not intended to be available for commercial or business disputes or for investors. All of these objections are true, but these consumer-oriented developments are nevertheless very relevant, even outside the consumer context. Indeed, as noted above, the proposal by its own terms is meant to apply on behalf of consumers to a very broad range EU laws the violation of which would permit claims under this new procedure.


The reason I say this is based on prior experiences. For example, as I noted in a recent blog post, look at what happened in France after it first adopted a consumer collective action mechanism in October 2014. Within a two-year period after the enabling legislation first became effective, the legislation had been amended several times, each time adding provisions expanding the types of disputes for which collective redress may be sought.


In my view, with the adoption of collective redress mechanisms, it is a relatively short leap from what is already permitted to what may be next, which is the use of these kinds of procedures for a wider variety of kinds of disputes, including even corporate and commercial disputes. All it would take is for some corporate scandal to emerge resulting in widespread shareholder disgruntlement. At that moment, aggrieved investors might well turn to the existence of the class action model and seek to use it as a tool to seek redress; if the limitations on the model stymie their efforts, the ensuing result might well be legislative reform.


Whether any of that actually happens will remain to be seen. However, there is a reason why legal authorities increasingly are turning to collective redress mechanisms.  In the 21st century, the global economy is complex, which in turn means that claims and claims processes necessarily will be complex, in many instances. Consumer products affect thousands or even millions of consumers. Company misconduct can affect thousands of investors, in multiple jurisdictions. The existence of collective redress mechanisms may be an arguably is a necessary consequence of the complex global economy in which we live. It may not be inevitable that the initiation of collective consumer redress mechanisms will lead to the development of collective redress alternatives in other contexts – but in my mind the further extension of the collective redress model is at least more likely.


And finally, without regard for what the European Commission’s collective redress proposal may portend for the future, the initiative has come in for criticism for what it is in and of itself. On April 11, 2018, the U.S. Chamber’s Institute for Legal Reform issued a statement warning that the Commission’s proposal could make the EU a “major global hub for abusive litigation” and said that the proposal “may result in a system that is as bad or worse than in the U.S.”  The proposal, the group said, could allow lawsuits by “undefined groups of consumers” without sufficient safeguards, and could risk “forum shopping” as claimants are drawn to countries most permissive laws. The proposal could also encourage redundant lawsuits as consumers file multiple claims in different jurisdictions over the same injury.