PAVIA e ANSALDO Studio Legale

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1 Avenue Des Arts Bruxelles-Belgium- Tel Fax / info.bruxelles@pavia-ansaldo.be Brussels, 29 April 2011 European Commission Consultation on collective redress Avenue de Bourget 1-3 B-1140 Brussels (Evere) Belgium Via EC-collective-redress@ec.europa.eu OBSERVATIONS TO THE PUBLIC CONSULTATION TOWARDS A COHERENT EUROPEAN APPROACH TO COLLECTIVE REDRESS SUBMITTED BY PAVIA E ANSALDO STUDIO LEGALE, BRUXELLES Dear Sirs, We welcome the opportunity to contribute to the debate over the European Commission s Public Consultation Towards a Coherent European Approach to Collective Redress. Please find herein below the comments of the Antitrust and EU law Departments of Pavia e Ansaldo ; for this purpose, reference is made to the order and questions used in the text of the Consultation. As you will see, we have dealt with a selected number of questions addressed in the Consultation Document. We believe that the questions we have dealt with constitute some of the key issues of this consultation. In the present Observations we will first consider whether collective redress may indeed have any added value for improving the enforcement of EU Law (Question 1). Then, we will deal with the general principles and the defining features of a possible initiative in this field (Questions 7, 11 and 12). Alternatives to judicial mechanisms will also be considered (Questions 15 and 16). Then, some procedural issue related to mass claims will be dealt with (Questions 20, 21, 22). Furthermore, since we believe that there is a need to focus on the cross-border aspects of the possible collective redress scheme, we will address certain issues related to private international law aspects of collective actions (Question 30). Our last observations will be devoted to the questions concerning the Via del Lauro, 7 - I Milan. Tel Fax info.milano@pavia-ansaldo.it Via Bocca di Leone, 78 - I Rome. Tél Fax /7. info.roma@pavia-ansaldo.it Nikolskaya Street, 10 - RU Moscow. Tel Fax info.moscow@pavia-ansaldo.com Kropotkina Street, 1 - RU St. Petersburg. Tel Fax info.saintpetersburg@pavia-ansaldo.com

2 approach to be taken in order to provide for a coherent and consistent collective redress mechanism (Questions 33 and 34). I. POTENTIAL ADDED VALUE OF COLLECTIVE REDRESS FOR IMPROVING THE ENFORCEMENT OF EU LAW Q1: What added value would the introduction of a new mechanism of collective redress (injunctive and/or compensatory) have for the enforcement of EU law? We acknowledge the significant impact that a collective redress mechanism is likely to have on Member States legislation. A possible collective redress mechanism will also have a significant impact on the most important actors of the common market, that is, consumers and businesses. The Commission takes the view that collective redress should be understood as a possible instrument to strengthen the enforcement of EU law. 1 We point out that enforcement of EU law in areas such as competition law, environmental law and consumer protection is demanded to the Commission and to national public authorities. However, private actors (such as consumers, businesses and their relevant organizations) also have a role within the public enforcement framework, since actions by the Commission and/or by national authorities or public oversight bodies are often based on complaints brought by consumers and businesses. Furthermore, these actors are entitled to lodge individual complaints before the competent courts in order to seek individual redress and damages compensation in case their individual rights have been prejudiced. 2 In the light of the above, we believe that the EU ought to avoid the use of private actions as a means of enforcement, and that the principal enforcers of EU law ought to be public bodies (i.e. the Commission and the relevant national authorities). Private actions whether individual actions or mass claims should not be used as tools for enforcement. In particular, a possible collective redress should focus on compensation issues, rather than on enforcement. In fact, the question concerning the added value of collective redress should address the issue of whether the existing EU instruments and mechanism available to private parties are adequate when it comes to manage multi-party, judicial claims in cross-border disputes. In that context, we point out that the legal instruments adopted at the EU level in order to achieve adequate redress for consumers have certain gaps. These gaps mainly concern (but are not limited to) the fact that there are not mechanisms, instruments or schemes for managing multi-party claims throughout the EU. The value added a possible EU collective redress mechanism may bring to the existing legal framework may be summarised as follows: 1 See the consultation document, paras In fact, the Commission points out in the consultation document that EU law provides for a set of instruments by which individual redress may be sought, such as accelerated procedures which allow parties to swiftly obtain an enforceable judgment (see para 4), as well as out of court settlements. 2

3 It is stated 3 that there is evidence that commercial malpractice affecting multiple consumers often goes unsolved (e.g., because of the small amount of the individual claim, if compared to the costs of the legal proceedings). Collective redress mechanisms adopted at the EU level can potentially provide a solution for the problems consumers face in obtaining redress for mass claims both in national and cross-border contexts. The added value lies in the aggregation of claims: bundling the claims may reduce litigation costs and may enhance private enforcement. However, this point also raises some concerns with regard to the risk of abusive and frivolous litigation (see our answers to Questions 7, 11 and 12). The existing legal instruments specifically designed for consumer redress 4 do not provide for consumer compensation. Therefore, a possible instrument should consider the issue concerning consumer compensation, laying down relevant uniform provisions throughout the EU. We believe that a possible judicial collective redress mechanism should be compensatory in nature rather than a tool for enforcement. In the light of the above, a collective redress reform could be necessary as a means of providing access to justice, and not as highlighted above a tool of enforcement. Since the EU legal framework lacks an instrument for managing efficiently mass claims, we are of the opinion that the most important added value for an European collective action could be its suitability for efficiently managing a multitude of claims and for facilitating low value claims (in case through collective ADR schemes: see answers to Questions 15 and 16 ). In conclusion, we are of the opinion that the added value of a European collective redress mechanism should be considered not on the basis of how it could supplement or enhance public enforcement. Rather, the added value of a possible EU initiative on collective redress lies in its capacity to enhance the protection of consumers (particularly in cross-border transactions). Since the EU already makes provision for harmonized substantive rights for consumers, we are of the opinion that it should in the same way ensure that there are appropriate procedures in place for consumers to be able to uphold these rights. II. GENERAL PRINCIPLES TO GUIDE POSSIBLE FUTURE EU INITIATIVES ON COLLECTIVE REDRESS Q7: Do you agree that any possible EU initiative on collective redress (injunctive and/or compensatory) should comply with a set of common principles established at a EU level? What should these principles be? To which principle do you attach special significance? 3 Commission Green Paper on Consumer Collective Redress, COM (2008) 794 final, para That is, Commission Recommendation 98/257/EC of 30 March 1998 on the principles applicable to the bodies responsible for out-of-court settlement of consumer disputes, OJ L 115, , p.31, Commission Recommendation of 4 April 2001 on the principles for out-of-court bodies involved in the consensual resolution of consumer disputes, OJ L 109, , p. 56, and Directive 98/27/EC of the European Parliament and of the Council of 19 May 1998 on injunctions for the protection of consumers interests, OJ L 166, , p. 51. These instruments have been explicitly mentioned in para 16 of the Commission Green Paper on Consumer Collective Redress. 3

4 The European Commission has defined collective redress as a broad system that encompasses any mechanism that may accomplish the cessation or prevention of unlawful business practices which affect a multitude of claimants (injunctive) or the compensation for the harm caused by such practices (compensatory). Accordingly, primary scope of the Commission s initiative in this field is to set up an appropriate collective redress system for Europe, which will ensure the rights for every victims to an effective remedy and to receive compensation for the harm they suffered. After the significant political row at the end of the last Commission in 2009, the Commissioners for Justice (Reding), Competition (Almunia) and Consumer Affairs (Dalli) collaborated in agreeing a joint policy and issued a Note on 5 October 2010 identifying a first set of core principles which could form part of a European framework for collective redress. First, any EU initiative on compensatory collective redress should first and foremost ensure that any right of injured parties to compensation can be effectively and efficiently obtained. Secondly, the parties should have the possibility to resort to a collective consensual resolution of their dispute, either by settling among themselves or using an Alternative Dispute resolution mechanism. Third, the rules on European civil and procedural law should work efficiently for collective actions and judgments should be enforceable throughout the EU. Fourth, adequate means of financing should be available to allow citizens and businesses to have access to justice. Finally, any European approach to collective redress would have to prevent from the outset the risk of abusive litigation, thereby opposing to the introduction of class actions along the US model into the EU legal order (see infra Question 11 and 12). In order to effectively enact those basic provisions, we believe that any possible EU initiative on collective redress should comply with a set of common principles established at a EU level. In effect, we consider that a common framework of general principles is necessary to achieve a common level play field intended to guarantee legal certainty to the consumers seeking redress. In particular, we remind that after the entry into force of the Treaty on the Functioning of the European Union ( TFEU ) the Charter on Fundamental Rights has gained the same legal value as the Treaties, as expressly set down in Article 6 of the Treaty on European Union, and binds both the Union and its Member States. The Charter is largely a codification of case law for the purpose of making it more visible to the individuals affected but also of giving fundamental rights a stronger position and to function as a platform for future developments. To this regard, the Commission should pay particular attention to the following principles: The right of access to a judicial process. The terminology used to refer to this body of rights varies: reference can be found to a right of judicial control, a right to a fair hearing, right to access to a court, a right to be heard and a right to/of defence. 4

5 The prohibition of discrimination intended as a specific expression of a broader, general principle of equality that requires that similar situations shall not be treated differently unless such a distinction can be objectively justified. The principle of effectiveness, according to which national procedural rules must not render virtually impossible or excessively difficult the exercise of rights conferred by EU law. To this purpose, national courts should adopt a full-effectiveness approach in order to set aside national provisions that might prevent EU rules from having full force or effect. Moreover, whether the EU adopts legislation on collective redress, any new initiative would have to comply with the principles of subsidiarity and proportionality laid down in Article 5 TEU. In fact, a further concern is whether measures taken at EU level would be compatible with the principle of subsidiarity as set out in Article 5, par. 3 TEU, according to which in areas which do not fall within its exclusive competence, the Union shall act only if and in so far as the objectives of the proposed action cannot be sufficiently achieved by the Member States, either at central level or at regional and local level, but can rather, by reason of the scale or effects of the proposed action, be better achieved at Union level. As stated in the Green Paper itself, 5 already 13 Members States have judicial collective redress mechanisms that can also be used by consumers (see infra our answers to Question 8 and 11). Member States which do not have any, or in the view of the Commission not sufficient mechanisms for consumer (collective) redress, should therefore first be given the possibility of further developing and/or improving their legal regimes themselves whilst preserving their underlying legal traditions. The principle of subsidiarity is of fundamental importance in considering whether any legislation should be proposed in this area. We believe that when legal acts for collective redress are prepared at EU level it will be essential to ensure that the national legislator is left sufficient scope on transposition to be able to keep the system compatible with national law. Any European measure should therefore go no further than to prescribe minimum standards, in the form of a recommendation or directive for example, which could allow Member States to retain their own legal culture and systems on the matter, and thus to preserve their domestic coherence. Accordingly, with regard to the practical implementation of any new collective redress measure, attention must be paid to the choice of the legal basis for legislation. Two scenario are possible: Articles 114 and 169(2) (a) TFEU - which are concerned with ensuring the free movement of goods and the protection of consumers and could form the basis for the implementation of a collective action limited to the area of consumer law; and Articles 67(4) and 81(2)(e) TFEU - which are concerned with developing judicial cooperation in civil matters which have cross-border implications and could be used as the legal basis for a more general measure. In this connection, we point out that those legal bases may only permit the introduction of legislation affecting cross-border claims, not domestic claims. In effect, a prerequisite is that 5 Commission Green Paper on Consumer Collective Redress, cited supra, para 12. 5

6 there is a cross-border element in the affected matters and that an intervention is necessary for the smooth functioning of the single market. On the contrary, the Commission s proposals do not exclusively deal with this cross-border element but rather seems to contemplate changes regardless of whether they would involve a single Member State or be cross-border. Likewise, insofar as purely national cases are concerned, the Commission clearly lacks corresponding regulation authority. Specifically, we note that Article 81 falls under Title V of TFUE, which deals with the Area of freedom, Security and Justice. This suggests that, as a legal basis for measures relating to collective redress (which on their face have no connection with Title V of the TFEU), use of Article 81 is not correct. In any event, Article 81 is explicitly stated to provide for measures to be taken in the field of judicial cooperation in civil matters having cross-border implications. These comments also relate equally to the conceivable rule of competence of Article 114 TFEU (approximation of laws relating to the internal market), which is subordinate anyway to the regulations of Article 81 TFEU. Moreover, for the applicability of Article 114 where appropriate in conjunction with Article 169 (2)( a) TFEU, it is a requirement that they relate to the setting up and operation of the internal market. In other words, national differences must entail a distortion of competition in the single market. However, not every impact on competition is sufficient to require action by the EU. According to the European Court of Justice case-law, the distortions of competition in the internal market must be appreciable. 6 It is doubtful whether the distortions in markets feared by the Commission are already appreciable in this case since all the companies active in a national market are exposed to the redress mechanisms available in that country. In fact, pursuant to Article 16 of Regulation (EC) No 44/2001 7, a consumer may bring proceedings against the other party to a contract in the courts for the place where he is domiciled. This means that a consumer can always bring a claim at their place of residence, all companies active in a national market are exposed to the redress mechanisms authorized there. In any case, in this respect, there is no question of a distortion of competition. Q8: As cited above, a number of Member States have adopted initiatives in the area of collective redress. Could the experience gained so far by the Member States contribute to formulating a European set of principles? All Member States of the EU have introduced forms of collective injunctive relief as required by existing EU legislation and international agreements. Thirteen of them have put in place procedures for collective claims of compensatory relief in certain areas but every national system of compensatory redress is unique and vary widely throughout the EU. They are differences in respect of the sectors concerned or the rules governing legal standing and funding. This means that the impact of any possible 6 Case C-376/98, Federal Republic of Germany/European Parliament and Council of the European Union, [2000] ECR I- 8419, para Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, OJ L 012, , p. 1. 6

7 European measure on the national legal systems would vary depending on whether the Member State concerned already has a system of collective redress in place and what the defining features of this system are. As commonly recognized, Sweden has set the agenda not only for the Scandinavian countries in the long established spirit of Nordic legislative co-operation, but for most of the old Member States in its long and intensive political debate over the pros and cons of transferring the US class action model to Europe. The result has been an opt-in solution, which was lately based on the need to respect the right to be heard of all those who are involved in mass actions but are not leading the case. The Swedish law on Group Actions takes up all issues which are discussed in the US class action but tries to avoid the incriminated pitfalls of the US solution and embeds the European version of the group action. The act contains different provisions about what constitutes a group action, the commencement of the procedure, the choice of the appropriate group representative, his or her control by the judges, the tasks and duties of lawyers and judges during the litigation to carefully manage the litigation, the settlement in courts and its possible legal effects. The respective legislative acts adopted in Denmark, Finland and Norway follows the Swedish optin model though allowing opt-out claims in particular circumstances. The German Academic Draft Act was inspired by the Swedish model as well. As for Italy, the national legal system provides for different kinds of collective redress to handle claims concerning a plurality of individuals: 1. Cumulative action. Multiple plaintiffs may grant a single lawyer proxies to act on their behalf against the same defendant in a single proceedings. Such a case is a group action only in fact, as every single petitioner needs to give an individual power of attorney and is a full-rights plaintiff. 2. Representative action for injunctive relief pursuant to article 140 of Legislative Decree No 206/05 (hereinafter Consumers Code ): consumer associations have the right to bring legal action for injunctive relief in favour of all consumers (not only their members). However, pursuant to the aforesaid article, consumer associations are not allowed to claim compensation on behalf of their associates but only the cessation of unlawful behaviour (injunctive claims). 3. Class action (azione collettiva risarcitoria, hereinafter the Class Action ) for awards of compensatory damages or payments of amounts to multiple individual consumers pursuant to Article 140-bis of the Consumer Code ( Class Action ). The introduction of the Class Action in Italy has been controversial. Several bills on the matter had been introduced, but never passed, since In December 2007, the national legislator introduced a group action that was supposed to enter in force from June 2008 but has subsequently been postponed until January The final introduction of the class action was made through the amendment of section 140-bis of Law Decree 206/2005 by section 49 of Law No 99/ Disegno di legge no. 679 of 26 July Since then, more than 10 bills have been proposed unsuccessfully. 9 More specifically, the Italian budget law of 24 December 2007, n. 244, in force as of 1 January 2008 (hereinafter the Budget Law ) introduced into Italian Law a form of class action for awards of compensatory damages or payments of amounts to multiple individual consumers. 7

8 Accordingly, class actions became available to consumers beginning January 1, 2010, and in connection with facts occurring after August 15, The new legal framework provides that homogeneous individual rights of consumers and users may also be protected through class action. The term homogeneous individual rights refers to those subjective individual situations which may be joined together due to their common ground on account of the constitutive act (the right) or on account of the fact that the issues to be resolved are the same. Therefore, with the introduction of class action, a new procedural instrument is set in order to assert collectively a subjective right which each party may, nevertheless, claim on an individual basis. As regard the scope of application, under Article 140-bis, para. 1, of the Consumers Code each individual consumer or user has standing to sue on behalf of other perspective class members (consumers associations may also be mandated to act, but do not have their own standing). Reference shall also be made to the definition of consumer and user set out by Article 3 (1) (lett. a) of the Consumer Code, whereby a consumer or user is the individual who acts outside the scope of his/her entrepreneurial, commercial, artisan or professional activity. Moreover, the possibility of bringing a Class Action is given only for certain consumer associations, and other entities deemed suitably representative of the interest of a given group of consumers. 11 The rationale underlying the rule is based upon the fact that only a private party, on account of his capacity as member of the class, is in a position to offer the most appropriate guarantees on his capacity to represent the entire class, unlike a category association which would be acting on behalf of the class from a detached and extraneous third party position. Therefore, the legal standing to bring a Class Action has been limited with a view to pre-empting a distorted use of this new tool by entities that are not truly representative of any collective interest. That being said, the Class Action may be used in all cases in which harm is caused to many consumers or users in connection with: (i) standard form contracts 12 ; (ii) identical rights belong to the final consumers of a given product, against the manufacturer of the same, regardless of whether or not there exists a direct contractual relationship between the manufacturer and the consumer; (iii) 10 The legislature took action in 2009 on the class action in two phases: (i) through legislative decree no. 78 of 2009, which entered into force on 5 August 2009, converted with amendments into the law of 3 August 2009 no. 102, the Government replaced the wording "upon the expiry of 18 months" with the wording "upon the expiry of 24 months", postponing the entry into force of the class action to 1 January 2010; (ii) in the meantime, Parliament approved law no. 99 of 23 July 2009, which entered into force on 15 August 2009, section 49 of which replaced in its entirety section 140-bis of the Italian Consumer Code, setting out a new legal framework for class actions. It is precisely through this law that the legislature limited the temporal scope of application of the new provisions, laying down under section 49 that the provisions of section 140-bis of the Italian Consumer Code apply to unlawful acts committed after the entry into force of the law and, therefore, after 15 August As of today there are 18 accredited associations, which are listed in the website of CNCU (Consiglio Nazionale dei consumatori e utenti, a body established pursuant to Sec. 136 of the Consumers Code at the Ministry of Economic Development); see 12 Standard form contracts means contracts entered into by many different consumers and users with the same company, in the same situation, including rights pertaining to contracts entered into in accordance with sections 1341 and 1342 of the Italian Civil Code. Retail banking, insurance and financial services contracts often fall into this category. 8

9 identical rights to compensation for damages caused to consumers and users by unfair business practices or conduct in breach of principles of fair competition. Under Article 140-bis, para. 1, the Italian competent court for the purposes of the Class Action is the ordinary court located in the capital of the region where the defendant company has its registered office; ad hoc courts are also envisaged for certain regions. 13 To this regard, we note that the Code does not provide any further specification in the event that the undertaking has no registered office in Italy. The new legal framework includes detailed provisions governing the procedures to be followed in order to participate in a class action. In particular, it establishes a system whereby consumers willing to take advantage of the Class Action should opt-in by notifying the relevant Consumer Association in writing by a deadline set by the judge. Such deadline may not exceed 120 days, starting from the expiry of the term assigned to the plaintiff for purposes of the public announcement of the class action. To this regard, it is not clear how consumers may express their adhesion, considering that section 140-bis allows them also to become parties to the proceeding by way of formal intervention, that is, appointing their own lawyer, and complying with all the requirements laid down by the Code of civil procedure. However, the court decision will be binding only on opting-in consumers. Therefore, all those who, despite being so entitled, have not declared their intention to participate in the class action or have not appeared in the proceedings, may (and indeed must if they intend to obtain protection) bring an individual legal action. Concerning the applicable procedure, preliminarily the competent court must assess if the class action is admissible. In particular, it must ascertain that (i) the action is not preposterous, (ii) a conflict of interests does not exist and (iii) there is a collective interest which can be suitably protected by the Class Action (Article 140-bis, para. 6). If the three-fold test is met, and the Class Action is then deemed admissible, adequate notice of the action must be given to the public by the relevant Consumer Association in order to let potentially interested consumers opt in, if they so wish. The court order is also to establish the relevant features of the individual rights object of the procedure, specifying the criteria for the other consumers to optin. In this respect, the undertaking concerned has also the possibility within 30 days to appeal the court order in case it believes the court has wrongfully admitted the Class Action in the first instance. Following the preliminary assessment, the court can find either in favour or against the relevant Consumer Association. In the event that it finds in favour of the Consumer Association, the court does not award a specific amount of damages; rather, it sets out the criteria for determining the amount to be awarded to the opting-in consumers. When possible, the court also establishes the minimum amount payable or refundable to each consumer (Article 140-bis, para. 12). 13 The Court of Turin for Valle d'aosta and Piedmont, the Court of Venice for Veneto, Trentino Alto Adige and Friuli Venezia Giulia, the Court of Rome for Lazio, Marche, Abruzzo and Molise, the Court of Naples for Campania, Basilicata and Calabria. 9

10 Within 60 days of the judgment notice being served, the concerned undertaking should offer to each opting-in consumer an amount determined in line with the criteria set by the court. The offer must be signed by the undertaking, notified to each entitled consumer and filed with the court. No specific formal requirement has to be satisfied by consumers to accept the offer (Article 140-bis, para. 13). The Law that introduced class actions has been effective since January 2010, hence it is early to predict how this instrument will operate in practice. In an ordinance of December , which was filed with the Court of Milan on December 20, 2010, a class action brought under Section 140-bis of the Customer Code was declared admissible for the first time in Italy. 14 However, this only means that the class action has passed the preliminary examination stage and avoided early dismissal - a first judgment on the merits is still far way. Although consumers welcomed the introduction of the Class Action, it may be argued that the new regime has still some missing points and presents a number of imperfection (among others, uncertainty as to legal standing; competent court for foreign enterprises; criteria to determine damages). The fact that so few class actions have been brought since the class action procedure was introduced over a year ago makes it reasonable to question the effect of the gaps in the applicable regulations. To this regard, we assume that an European collective redress mechanism could boost this process by introducing a coherent and principles-based approach that can be applied in a consistent manner through the EU The need for effective and efficient redress Q11: In your view, what would be the defining features of an efficient and effective system of collective redress? Are there specific features that need to be present if the collective redress mechanism would be opened to SMEs? The question of how most effectively to deal with multiple claims of a similar nature has been raised and considered by the Commission as well as by Member States on many occasions over the last decade or so. Therefore, in consideration of the various consultations held so far and the related observations submitted by stakeholders, we have identified the following defining features that may constitute the backbone of an efficient and balanced procedure for the resolution of multiple or collective claims which raise similar or common issues of either law or fact. First, the questions surrounding any collective mechanism should be framed in the present legal and economic context. For instance, as we become an increasingly mass producing and mass consuming society, one product or service with a flaw has the potential to injure or cause other loss to more and more people. Yet in several Member States civil justice systems have not been adapted to mass legal actions. Some Member States still largely treat them as a collection of individual cases, with the findings in one case having only very limited relevance in law to all of the others. We believe that a level playing field is crucial to support the full potential of developments in the area of 14 Court of Milan, judgment of 20 December 2010, Zacchei C. Soc. Voden, in Foro it. 2011, 2, I,

11 collective redress. In fact, the existence of multiple and fragmented systems within each Member State and wide differences between national systems are obstacles to consumers seeking redress across borders (and indeed potentially even within borders). Second, in order for consumer confidence to grow in gaining redress, consumers need to be aware of the existence of such systems and believe that they will actually be able to obtain redress. In our view it will be much easier to educate and inform consumers about redress if there is a straightforward, accessible system which they can use wherever they shop within the EU. We therefore are in favour of a binding system that delivers redress to consumers. 15 Third, we believe that the best way of achieving this is through a judicial mechanism with appropriate safeguards (e.g. negotiations aimed at preventing litigation, as discussed infra in our answers to Questions 15 and 20). We feel this is likely to provide the only solution that will avoid the inconsistencies and complex problems of differing legal systems and regimes. A common and coherent judicial mechanism, committed to accessibility and transparency, will be able to transcend differences in national systems and achieve economies of scale and clarity that would not otherwise be achievable. Furthermore, the establishment of a judicial mechanism may also boost the recourse to out-of-court collective remedies. In fact, in order to be effective, out-of-court settlements for collective claims must be supported by a real prospect of a collective action, in case the infringer does not provide its victims with a fair resolution. The existing prospects of litigation, however, would be a sufficient countervailing factor to encourage out-of-court dispute resolution. Fourth, within the context of a binding judicial mechanism, these basic principles should be applied: Introducing measures to provide access to justice where large numbers of people have been affected by another's conduct, but individual loss is so small that it makes an individual action economically unviable 16 (see also answers to Questions 12 and 15); providing expeditious methods of resolving cases, where individual damages are large enough to justify individual action but where the number of claimants and the nature of the issues involved mean that the cases cannot be managed satisfactorily in accordance with normal procedure; introducing measures to achieve a balance between the rights of claimants and defendants (particularly as regards the quest to find the balance between the benefits class members receive from class actions i.e. compensation and damages and calculation of punitive damages against corporate defendants, if awarded); to avoid over-incentives for litigation that will inevitably lead to the known excesses of class actions as reported in other jurisdictions, notably the United States (see answer to Question 20). 15 As it was envisaged in Option 4 of the Commission Green Paper on Consumer Collective Redress, cited supra. 16 The EU investigated a study in 2008, which found that 50% of those consulted would not bring a claim for less than 200. About 20% of those consulted would not bring a claim for less than 1, % of those consulted would be more likely to bring a case if a collective redress mechanism was available. The study is available at 11

12 As regards special features to be considered if the collective redress mechanism would be open for SMEs, we point out that there are certain common features between SMEs and consumers seeking redress. Indeed, as noted above, individual businesses or consumers are often reluctant to claim compensation for the harm caused by anticompetitive conduct. There are many potential reasons in this respect and some of them have already been discussed above: the damage individually sustained might be relatively low or difficult to prove, the risks of enforcing damage claims might be regarded too high in view of ongoing business relationships, or a damage action appears to be too costly and burdensome. Mechanisms of collective redress are said to overcome these obstacles to effective private enforcement. They allow for the bundling of a multitude of individual claims which result from the same competition law infringement and creates significant procedural efficiencies for the benefit of the claimants, defendants and the judicial system as a whole. Notwithstanding this, as it will be extensively discussed in our answer to Question 34, a possible initiative on collective redress should nonetheless take into account additional, specific features concerning the position of SMEs, depending on the sector concerned (e.g. antitrust damages actions). Q12: How can effective redress be obtained, while avoiding lengthy and costly litigation? It seems to us that the question at issue moves from the assumption that litigation in the normal course can be expensive and time-consuming. On the basis of such assumption, some have rejected the idea of a judicial litigation or court-based procedure as the primary model for delivering collective redress and have called for an integrated model combining elements of bilateral negotiation and settlement, the involvement of outside facilitators such as mediators and public authorities and a court-based procedure as a supervisory and last resort. It has to be recalled in that context that some out-of-court instruments specifically designed for consumer redress already exist at European level. There are for instance two Commission Recommendations to facilitate alternative dispute resolution through simple and inexpensive procedures. 17 However, the Commission itself stated that the overall performance of the existing consumer redress and enforcement tools designed at EU level is not satisfactory, 18 particularly as far as cross-border mechanisms are concerned. 19 The EU Mediation Directive 2008/52/EC, 20 that will enter into force only on 21 May 2011, has attempted to address the cross-border issue, but several 17 Commission Recommendation 98/257/EC on the principles applicable to the bodies responsible for the outof-court settlement of consumer disputes, OJ L 115, , p. 31 and Commission Recommendation 2001/310/EC on the principles for out-of-court bodies involved in the consensual resolution of consumer ADR, OJ L 109, , p See Commission Green Paper on Consumer Collective Redress, COM (2008) 794 final, para As noted in the Commission Green Paper on Consumer Collective Redress, cited supra (at para 17), only two cross-border cases have been brought since the Injunctions Directive entered into force in 1998 (Directive 98/27/EC of the European Parliament and of the Council of 19 May 1998 on injunctions for the protection of consumers interests, OJ L 166, , p. 51), the main reasons being the financial risk for the entity bringing the case as well as the complexity and diversity of national injunctive proceedings. 20 Directive 2008/52/EC of the European Parliament and of the Council of May 21st 2008 on certain aspects of mediation in civil and commercial matters, OJ L 136, , p. 3. The substantive provisions of Directive 2008/52/EC will enter into force in the member States on May 21st

13 other issues remain unsolved, first and foremost that the Mediation Directive is not in itself an instrument which applies to collective claims. The purpose of Directive 2008/52/EC is to encourage and facilitate mediation as an alternative form of resolution of cross-border disputes in the EU. That is good in principle, but a closer look at the Directive shows it does not aim to change existing national laws very much, as there are several conditions to be fulfilled in order for the Directive to be applied. In fact, Directive 2008/52/EC applies when one party to the dispute is domiciled in a different member State from that of the other party and when national law requires mediation to be used in similar domestic disputes or when a court seized of the dispute invites the parties to have recourse to mediation. The Directive allows the parties to request that the content of a written settlement resulting from the mediation process be made enforceable except when it would be contrary to the public policy of the member State in which the settlement was made or when the law of that State does not provide for its enforceability. The content of the settlement which has been made enforceable in one member State shall be recognized and enforced in the other member States on the basis EU rules on private international law. Even though out-of-court settlement provides rapid redress without the need for costly, lengthy and inevitably uncertain litigation, we are of the opinion that there will be occasions on which consumers may not be able to obtain redress for legitimate grievances without resorting to litigation. In addition, due to their voluntary nature, based on a flexible and informal mechanism, out-of-court instruments are difficult to organize for collective disputes and should therefore be reserved to individual disputes. In the light of the foregoing, we believe that an effective redress mechanism should have the following features: Financial concerns related to costly litigation could be solved through a judicial collective redress mechanism: legal expenses can be reduced through aggregation of claims. An efficiency gain will result from aggregation of claims, particularly when the nature of the single claim or the amount at issue does not justify an individual action. Detailed rules concerning the way of aggregating claims should be laid down; Another way to approach the issue concerning the high costs of litigation across EU member States would be looking at funding alternatives (e.g. third parties funding through legal insurance or funding granted by public bodies to representative entities), as well as modifications or relaxation, under certain specific circumstances, of the loser pays principle (see answer to Question 21). However, we point out that the loser pays principle is an effective method for preventing abusive litigation and should the action brought by a class of consumers be unsuccessful it could be offset by the costs saved through the recourse to aggregation of claims; To avoid the risk of encouraging frivolous litigation (that may follow from a reduction of litigation costs), the competent court should subject any collective claim to a preliminary scrutiny before the claim is allowed to proceed. This preliminary scrutiny could be carried out by the court to which the matter has been referred and should be based throughout the EU on the same objective criteria (such as the fulfilment of the criteria concerning the minimum number of applicant allowed to bring a collective action) in order to prevent any discretionary power on the part of the judge dealing with the case; 13

14 As a consequence of the preceding point, collective claims be subject to an enhanced form of case management by specialist judges (or specialised chambers), who should act as gate keepers (see answer to Question 20). We warn the Commission that by providing sufficient incentives to bring actions, the European model may have to move dangerously close to the United States model of collective litigation. In conclusion, we believe that any European version of collective litigation should be able to generate the benefits of aggregation without incurring the costs of United States class actions The need to take account of collective consensual resolution as an alternative to dispute resolution Q15: Apart from a judicial mechanism, which other initiatives would be necessary to promote recourse to ADR in situations of multiple claims? The consultation document stresses the importance of a collective consensual dispute resolution instrument as a strong incentive for parties to agree out of court so as to avoid litigation. We have already pointed out above (see answer to Question 11) that the possible establishment of a judicial mechanism may also boost the recourse to out-of-court (collective) remedies. In fact, in order to be effective, out-of-court settlements for collective claims must be supported by a real prospect of a collective action, in case the infringer does not provide its victims with a fair resolution. The existing prospects of litigation, however, would be a sufficient countervailing factor to encourage out-of-court dispute resolution. In the light of the above, a mix of policy instruments that is, the prior recourse to ADR and the subsequent availability of an effective judicial redress system, should the former be unsuccessful could be an incentive for consumers to make use of ADR with the option to pursue judicial redress in case an out-of-court settlement of the dispute cannot be achieved. However, we believe that ADR could only be promoted in relation to low and medium value claims. This is because when consumers have to decide whether to take (judicial) action or not, the value of the claim plays an important role. Therefore, as also highlighted in the Green Paper on Consumer Collective Redress, 21 when the claim is below a certain threshold, ADR and small claims procedures may be more efficient and their use should be promoted in relation to mass claims through the adaptation of the existing instruments to multi-party claims. In fact, the European Small Claims Procedure 22 is intended to simplify and speed up litigation concerning small claims exclusively in cross-border cases, and is available to litigants as an alternative to the procedures existing under the laws of the Member States. The procedure at stake could be adapted in order to take into account specific issue linked to the management of collective claims. Within the same line of reasoning, other existing ADR instruments may be adapted to address the question concerning the promotion of 21 Commission Green Paper on Consumer Collective Redress, cited supra, para Regulation (EC) No 861/2007 of the European Parliament and of the Council of 11 July 2007 establishing a European Small Claims Procedure, OJ L 199, , p.1. 14

15 ADR methods in the context of mass claims. The Green Paper on Consumer Collective Redress highlighted that ADR schemes for consumers claims vary considerably within and between Member States and this represents a gap for recourse to this instrument. 23 We point out that, for ADRs to be an effective instrument and in order to promote their use, the EU legislative framework should be enhanced, as it only consists of two recommendations. 24 Besides, certain instruments that already exist at the EU level and are designed for individual claims only, such as the FIN-NET network discussed below (see answer to Question 33) may be adapted to the features of mass-claims and may be made accessible to consumers of other Member States. Therefore, in the light of the above we believe that a possible way to promote recourse to ADR in situations of multiple claims is to adjust the existing ADR schemes to deal with collective claims, since the principles underlying both actions are substantially the same (e.g., simplified out-of-court procedures, low litigation costs, relatively quick handling of the dispute). 25 We are also of the opinion that ADR schemes should only be used in relation to mass claims involving several individual low value claims, since ADR may be less suitable for high value claims which may involve complex facts and evidence gathering that should be better dealt with in the context of a judicial procedure. Q16: Should an attempt to resolve a dispute via collective consensual dispute resolution be a mandatory step in connection with a collective court case for compensation? As explained in our answer to the previous question, a distinction should be drawn between high value claims and very low value claims. Within the framework of very low value claims, for which consumers are unlikely to seek redress since the individual loss is lower than the cost of litigation, collective ADR methods may be introduced as a mandatory step. The benefit of this approach is in our view that only cases that remain unsettled reach the courts, so the ADR schemes act as a sort of gatekeeper against abusive and frivolous litigation. However, should a mandatory pre-litigation procedure be introduced (through ADR methods), the risk is that this out-of-court step may be considered by the parties as a preliminary, often unnecessary step to bypass in order to initiate judicial proceedings. This is what has happened in Italy, where pursuant to former Article 183 of the Civil Procedure Code the judge was requested, during the first hearing to attempt to settle the dispute amicably. This in practice never happened, therefore in 23 Commission Green Paper on Consumer Collective Redress, cited supra, para Commission Recommendation 98/257/EC of 30 March 1998 on the principles applicable to the bodies responsible for out-of-court settlement of consumer disputes, OJ L 115, , p.31, and Commission Recommendation of 4 April 2001 on the principles for out-of-court bodies involved in the consensual resolution of consumer disputes, OJ L 109, , p. 56. Furthermore, a consultation on the use of alternative dispute resolution as a means to resolve disputes related to commercial transactions and practices in the EU was launched took place between January and March See also Option 3 of Commission Green Paper on Consumer Collective Redress, cited supra, in particular para