Out-Law / Your Daily Need-To-Know

Consumers and businesses clash over EU consumer 'class action' suits

Out-Law News | 20 Aug 2009 | 10:25 am | 2 min. read

The retail industry claims that there is not enough evidence of consumer harm to justify allowing for class action-like lawsuits against companies in the European Union. Consumer groups have said the action is needed to close a 'justice gap'.

The European Commission has consulted consumers and industry on its proposals and has published the results of that consultation. In the consultation trade bodies even suggested that the Commission lacks the legal power to make the changes it has proposed.

"Some industry representatives and legal practitioners questioned the existence of a clear legal basis for consumer collective redress," said the Commission's report of the responses it received. "Industry representatives stated that the political will is not a legal basis and it is important to establish real evidence that a collective redress system is needed to protect consumers."

Consumer groups said that the plans for consumer collective redress, where consumers suffering the same problem would band together to take one big legal case against a company where it would be uneconomic to take individual cases, would give vital access to justice in an area where it is currently denied.

"Consumer representatives pointed to the existence of a 'justice gap' to the detriment of consumers due to the lack of collective redress schemes in a number of Member States," said the report.

"Consumer representatives submitted that an EU-wide collective redress system is needed to better protect consumers, increase their confidence in the Internal Market and enhance equitable access to justice," said the report. "In fact, consumer representatives pointed out that due to the discrepancies among the collective redress systems across the EU, consumers face difficulties when trying to apply collective redress cross-border."

The Commission's proposals are intended to give consumers an economic way to deal with situations where a company has broken consumer law in a way that affects many people in a relatively modest way.

“Consumers who are victims of illegal activities, such as overcharging, misleading advertising or outright scams, have a right to compensation," said EU Consumer Commissioner Meglena Kuneva at the launch of the plans last November. "Currently, particularly where there are small scattered claims, this right is often theoretical because of the obstacles to exercising it in practice."

"There is a justice gap, a welfare gap and there are black holes in our redress system that is leaving consumers with nowhere to go. The present situation is clearly unsatisfactory. We must find a way to make the basic right to consumer redress a reality for more people," she said. Companies and industry bodies, though, have responded to the consultation to register protests at the plans.

"Industry representatives stated that there was not enough evidence to demonstrate the EU scale of the problem," said the report on the consultation process. "An industry representative estimated the potential of cross-border mass claim cases only at 0.4 cases per year per Member State."

Many people responding to the Commission plans worried about the effect that the plans would have on countries' legal autonomy and the confusion it might cause between different jurisdictions.

"Stakeholders from all categories underlined the question of applicable law and competent jurisdiction as an inherent problem to the European collective redress mechanism," said the report. "One industry representative even warned that the development of a consumer collective redress system in Europe would give rise to a multitude of possible jurisdictions, based on the domicile of affected consumers and the courts being burdened with applying different substantive laws. It was indeed pointed out by a legal practitioner that the criterion of the most affected market may not allow determining with legal certainty the competent jurisdiction."

In May the Commission held an open meeting on its plans, details of which it has also published.

At that meeting business groups expressed doubt that enough mass consumer cases existed that were so international in their nature that they required EU intervention.

Consumer groups disagreed. "A Representative of the European Consumer Centre network argued they received in 2008 about 55 000 cross-border complaints, some of which are mass claims, in particular in the air travel area," said a Commission report on the meeting. "A legal expert estimated the potential for cross-border cases to increase, in particular in the financial services area."