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Allen & Overy LLP's Response to the European Commission Staff Working Document "Towards a coherent European approach to collective redress", SEC (2011) 173 final About Allen & Overy LLP Allen & Overy LLP (A&O) is an international legal practice with over 5,000 staff, including nearly 500 partners, working in 36 major cities worldwide. Its European offices are in Amsterdam, Antwerp, Athens (representative office), Bratislava, Brussels, Bucharest (associated office), Budapest, Düsseldorf, Frankfurt, Hamburg, London, Luxembourg, Madrid, Mannheim, Milan, Munich, Paris, Prague, Rome and Warsaw. A&O's clients include banks, corporations, sovereign states and individuals. A&O's response is based on the views of its practitioners in Europe, and to some extent its clients. We respond without attributing any particular view to any particular lawyer or client. To the extent that there are divergent views on particular issues, we have tried to capture these while at the same time making a single submission. This response is also inevitably very general given the general nature of the questions asked, and the early stage of the process reached. More detailed comments would be made in response to any specific proposals. Response We have set out our views on certain issues raised by the proposals for collective redress, although these do not readily fit into the sequence of specific questions posed by the consultation. We viewed the live webcast of the public hearing on 5 April 2011, and are members of the Working Party of the Law Society of England & Wales tasked with responding to the European Commission's recent proposals. ISSUE 1: Is there a need for a collective redress mechanism? We are aware that within the European Union, as the Green Paper points out, Member States take a variety of approaches to collective redress, ranging from a full system, to none at all. In certain jurisdictions, such as England & Wales and Belgium, there is currently no effective mechanism for collective redress, and the parties and courts attempt to adopt an ad hoc approach when the need arises. However, we have not heard of any real call for reform in this area from our clients. Indeed, a number of our clients would be opposed to the implementation of further collective redress mechanisms. Detailed comments would depend upon the detail of the proposals. Our principal observation at this stage is that the Commission should think incrementally, and not be overly ambitious, given the variety of views expressed at the public hearing, and the legal, practical, jurisdictional and political obstacles which lie in the way of a new EU wide collective redress mechanism. It may be that high-level principles or standards can be distilled across all sectors, but we do not believe that a single mechanism will prove acceptable for all forms of dispute or all jurisdictions. If anything is to be implemented, then we would favour non-binding good practice guidelines over any legally binding approach. From the consumer perspective (which we do not typically represent), we accept that collective action can allow in some cases otherwise small claims to be grouped together so that consumers can seek redress in an efficient manner, and defendants can deal with a widespread dispute in one action. From the enterprise perspective (which we do represent), to the extent that a mass dispute is in reality inevitable, our experience suggests that it is better for all parties if it can be managed centrally and any settlement or court order can then bring the matter to an end, so far as practical. We believe that a tempered proposal, such as good practice guidelines encouraging the judiciary to use their existing case management powers, could have assisted in the English bank charges litigation (Office of Fair Trading (OFT) v Abbey National plc & Ors [2009] UKSC 6). In the event, the banks proposed a way of isolating a test case and proceeding with that while informally staying the other actions. 0010023-0023819 LT:6476057.9 1

It is also critical from the business perspective that any collective redress mechanism is balanced and fair in its operation. This must have effective safeguards against time and cost wasting nuisance or frivolous litigation. Otherwise, there is a grave risk that commercial enterprise will be stifled, and EU businesses will lose a competitive position to non-eu jurisdictions, where businesses are non burdened by collective redress mechanisms. In the UK, the provisions relating to collective redress in the Financial Services Bill were abandoned just before the 2010 General Election. In short, by these provisions, the English court would have been permitted to make a Collective Proceedings Order (CPO) on the application of a representative, in effect allowing a representative to bring collective proceedings in respect of certain financial services claims against certain authorised persons, payment service providers or regulated entities. The court would have been able to direct whether the collective proceedings were to be brought on an "opt-in" or "opt-out" basis. The provisions also suggested that the UK Financial Services Authority, Office of Fair Trading and Financial Ombudsman Service could be heard at an application for a CPO, "make provision about damages" and "modify the effect of any limitation provision". Further, it was also suggested that the court be enabled "to make an award of damages without undertaking an assessment of the amount of damages recoverable in respect of each claim comprised in the proceedings". These proposals met with strong opposition on various grounds, including: It is inappropriate that claimants whose remedy is time-barred should be allowed to revive their claim by the means of a collective redress action. It is inappropriate that damages should be payable by a defendant based on a class of claimants who may never claim (the opt out case), without regard to actual loss suffered, and with unclaimed damages being given to charity. It is inappropriate that a financial services regulator should be given judicial power in a system of collective redress. It is practically difficult in an opt out case to compensate the successful defendant for the costs of fighting the losing case against it, or otherwise to implement effective deterrents to nuisance cases, where the individual claimants are mostly not known and take no active part in the proceedings. We do not believe these abandoned provisions should now be incorporated into any European proposal. ISSUE 2: What is the preferred basis for collective redress? Any action that the Commission took would need to have a clear legal base and scope. We have yet to see a clear case made by the Commission that it has a legal basis to intervene in national damages and domestic court procedural law (see, for example, the draft report of the European Parliament on the white paper on damages actions 2008/2154(INI)). If any collective redress scheme were to operate across the whole of the EU, then serious consideration needs to be given to how it would work within the Brussels I Regulation 1 as it stands and importantly to the extent it is reformed. 2 In particular, the Commission should avoid a scheme in which there is a race to the courts to be the first seised (whether by prospective claimant or prospective defendant seeking declaratory relief depending upon whether the particular Member State was pro-claimant or pro-defendant). It is also perhaps the case that a pan-eu "opt-out" collective redress scheme is not politically achievable, or commercially acceptable. For example, it is unclear that such a system would be possible in certain Member Sates such as France where there is an inability to abandon by contract droits disponibles (see also the 1 Council Regulation (EC) No 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters. 2 Proposal for a Regulation of the European Parliament and of the Council on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters COM(2010) 748 final. 0010023-0023819 LT:6476057.9 2

French Government's amicus brief in the US Supreme Court case of Morrision et al. v National Australia Bank Ltd. et al.). This is in contrast, for example, to the courts of the Netherlands, which have approved a US class action settlement 3 on an opt-out basis without any public policy objection (Royal Ahold NV, 23 June 2010). There are also challenges, which the Commission needs to consider, in meeting the obligations under Article 6 of the European Convention on Human Rights. However, we believe that where a dispute with merit exists, and on its face has a number of potential claimants, it may be in interests of efficient delivery of justice to have any resolution (by court or otherwise) be final and binding to the maximum extent possible over those litigants who participate, and so have their say, in the process. An "opt-in" system only, if the Commission decides there is a need for a system at all, would best achieve this end. Certainly from the defendant's perspective an "opt-out" system raises a number of objections (see under Issue 1 above, and Issue 5 funding). For further analysis, including the positive lessons that can be learnt from the US system, we draw your attention to an article published in Journal des tribunaux, "La class action et le droit belge va-etvient de part et d autre de l Atlantique", by Werner Eyskens (of A&O) and Nanyi Kaluma (JT 2008/0027). The English Court of Appeal decision in Emerald Supplies Ltd v British Airways Plc [2010] EWCA Civ 1284 has (for now at least) closed the door to the possibility that the courts would interpret the English Court rules on representative actions flexibly to allow a form of class action to be created without further legislation. Any justification for collective redress should be to afford compensation, rather than to police or enforce the law or to punish, which is something that should remain in the hands of public authorities. We are broadly in agreement with the views expressed by HH Judge Graham Jones at the public hearing this month that private actions are based on the idea of compensation. That should be to those who make a claim within the limitation period, and have suffered a loss within the permitted boundaries of the law. This must be kept separate to public enforcement, and the risk of double jeopardy through parallel civil and criminal actions must be borne in mind. We note that the system in the Netherlands has been successful and could serve as a model for the EU. In 2005, the Act on the Collective Settlement of Mass Damages (Wet Collectieve Afwikkeling Massaschade (WCAM)) was enacted in the Netherlands, which allows for court-approved mass settlements that are binding on an entire class of injured parties, unless they opt out. The WCAM creates a system strongly resembling United States-style class action settlements. The proceedings to render a settlement binding for an entire class starts with a settlement agreement between a foundation or association which is representative of the injured class and the defendant, pursuant to which the defendant agrees to make certain settlement payments to the injured parties. This agreement is submitted to the court, which determines whether the settlement is reasonable, taking into account the magnitude of the damages, the ease and speed with which the settlement payment is obtainable from the defendant, the costs and efforts which the injured parties would otherwise have to take to litigate the matter, the potential causes of the damage, and other relevant circumstances. After the judgment, the individual injured parties have a period of at least three months during which they can choose to opt out of the settlement. If they do not do so, the settlement becomes binding on them. The agreement may provide that the defendant can withdraw from the settlement if too many injured parties opt out. So far, five mass settlements have been concluded and approved under the WCAM by the court. As with US class action settlements, there is uncertainty whether a judgment under the WCAM is binding on injured parties to whom the settlement agreement relates but who are domiciled in countries outside the Netherlands, either within the European Union or elsewhere. So far, from the perspective of the Dutch courts at least, the settlement agreements are seen as binding injured parties in other countries. 3 Note specifically that this does not apply to judgments as opposed to settlements. 0010023-0023819 LT:6476057.9 3

The real success of the Dutch system is seen and being its confinement to settlement cases. Here most of the objections to collective redress litigation, especially on an opt out basis, are avoided through a largely consensual settlement process. Class action regimes were introduced in Italy and Poland during 2010. A significant number of claims have already been filed in Italy. It is probably too early to draw lessons just yet and this is a further reason for the Commission to be cautious about acting too soon. ISSUE 3: How should unmeritorious claims and forum shopping be addressed? We reiterate the concerns which have been previously expressed by stakeholders on a number of occasions, namely that any scheme needs to be effective in minimising, to the maximum extent possible, the scope for nuisance litigation. For example, it would be counter-productive to commerce in the EU if proposals were introduced which allowed claims for collective redress (where none had previously existed) be sold to potential clients by lawyers. As the Commission will be aware, the "loser pays" principle in England and Wales operates as a strong safeguard, which we would recommend, although we also recognise that in other Member States this is seen as unattractive (and not necessarily within the competence of the Commission). In some jurisdictions, such as Belgium, the ability to bring a claim for having to defend frivolous litigation could act as a safeguard, although the scope of such a claim is limited. Additionally a judge-led certification system could weed out unmeritorious or low value claims where there is little public interest. To the extent that the Commission decides there is a need for action on its part, we broadly support the views of HH Judge Graham Jones, who suggests that access to the courts should be controlled by the judiciary in such a way that time and costs are minimised. Such control could include checks as to the standing of representatives; a preliminary assessment of the merits of a claim; perhaps a minimum number of identified claimants; checks on the commonality of the interests represented and remedies sought; an assessment of whether it is likely the claimants will pursue their claim; consideration (non-mandatory) of Alternative Dispute Resolution and an inquiry into the funding arrangements of the case. However, such powers should not vest in regulatory authorities (for example, UK Financial Services Authority, Office of Fair Trading and Financial Ombudsman Service) or other regulatory entities. The decision to take any class action should be a private (that is, non-public) one with the court as arbiter. ISSUE 4: What about ADR? ADR cannot be a replacement for appropriate court mechanisms. The ability to enforce effectively private rights can be a catalyst to the parties adopting an efficient and mutually acceptable ADR solution to their dispute, but ADR processes alone cannot be enough. We note two further points in this regard. First, that the mediation initiatives already in place in England are often effective especially where consumers are involved. Secondly, we would urge caution about introducing mandatory ADR in whatever form (for further details please see our response to the Commission's Consultation Paper on the use of Alternative Dispute Resolution as a means to resolve disputes related to commercial transactions and practices in the EU). ISSUE 5: What about funding? We do not believe there is a need to change the current national position in each of the Member States on funding. In this respect, collective redress (to the extent that it is needed at all) should follow existing costs/funding regimes. There should be no public funding of collective redress actions nor should consumer bodies, for example, be able to use surplus or unallocated damages to fund further litigation. The approach must be on a State by State basis, since the right solution will be substantially different depending on whether, for example; the loser pays principle exists; state funding or legal aid is available; lawyers may work on conditional or contingency fees; and the availability of after the event insurance. 0010023-0023819 LT:6476057.9 4

The funding of collective actions remains a difficult issue, both in terms of claim costs and defence costs. This is altogether easier in an opt in only regime, where those opting in take on responsibility for their share of the costs, and fund this privately, by third party funding, by insurance, by pro bono representation, or some combination. This in itself is a useful check and balance against nuisance litigation. In an opt out case, where there are few active claimants, the same deterrent to nuisance litigation does not exist, and compensating a winning defendant for the costs of fighting the losing claim is much more difficult. Allen & Overy LLP 30 April 2011 0010023-0023819 LT:6476057.9 5