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Don’t import US-style class action abuses – think-tank

The US Chamber Institute for Legal Reform has called on lawmakers to ‘get it right first time’ in respect of the EU’s new collective action directive.

The European Parliament Legal Affairs Committee in early December passed rules allowing groups of consumers harmed by illegal practices to launch collective actions and seek compensation.

“A new collective action directive will create a whole new world of litigation in Europe and it is crucial that EU lawmakers get it right the first time,” Lisa A Rickard (President of the Institute for Legal Reform)  said.

Benefit
“The new directive must be for the benefit of European consumers and not import the abuses of the US class action system, which primarily benefits lawyers and profit-seeking third-party investors in lawsuits,” she said

“The European Parliament’s Legal Affairs Committee report is poorly written and lacks clear safeguards to prevent fraud and abuse. Still missing is a requirement that consumers give their consent or ‘opt-in’ to join a collective claim, and clear criteria to eliminate meritless claims.

Rush through
“Members of the European Parliament and Council should not rush this proposal through the legislative process and must address these and other critical issues,” the institute says.

Currently, only 19 member states provide some form of legal remedy to victims of mass harm, and proceedings can often be lengthy and costly, especially if victims go to court individually.

The new rules will allow group action against trader violations and aim to address concerns raised by recent mass-harm scandals with cross-border implications.

The Institute for Legal Reform is an affiliate of the US Chamber of Commerce and an influential advocate for civil justice reform, both in the US and abroad.

A&L Goodbody partner Liam Kennedy offers his personal thoughts:

Careful consideration

“Speaking personally, I agree that introduction of a class-action procedure at EU level would be a major change, which requires careful consideration and consultation.”

He says the often-criticised US class action regime operates in a country where there may be less regulatory support available to protect consumers – in the US, class actions fill this perceived gap.

By contrast, there are often more effective regulatory regimes in the EU to protect consumer rights.

EU model

“I would argue for the existing EU regulatory approach as being more appropriate than class actions – the traditional EU model is not dependent on the vagaries of private litigation to regulate corporate behaviour.”

From a litigation perspective, Kennedy believes it is clear that there should be efficient ways of managing large-scale multi-plaintiff litigation in a way that is fair to consumers, and also to potential defendants, but it is not clear that this is the solution.

The complexity of the issue is shown by our own Law Reform Commission's report, he says.

“There are very different class-action or group-litigation models in different jurisdictions around the world, including the US, UK, Australia, Israel and the Netherlands.

“Significant policy and ethical issues need to be addressed, particularly if an ‘opt-out’ model is chosen. This would allow proceedings to be maintained on behalf of thousands of individuals, without requiring the agreement of each individual class member. 

Cost recovery

“The provision for costs and cost recovery would also need to be considered, as would the need for safeguards to ensure proportionality and to prevent abuse.”

Such fundamental changes merit further consideration and analysis, Mr Kennedy believes, as does the legislation currently before the Dáil, which is considering the same issue from a different perspective.