A Volkswagen car model 'VW Tiguan' next to handcuffs. The photo was taken on 15 October 2015. Sascha Steinach/Press Association. All rights reserved.Dieselgate held up a mirror to the
notion of an EU Single Market where the rights of consumers are respected and
enforceable, humiliating European consumers and regulators alike on their own
continent.
Whilst US VW owners successfully extract
billions in compensation with class-actions (and VW management is also
put behind bars),
in the EU, where the majority of VW consumers actually are, the struggle to
obtain even meagre redress for consumers continues (with VW management avoiding
jail time as well).
It’s just one example of an EU mass
harm situation where victims have been left without effective remedy. When we
consider other areas of harm such as environmental (e.g. toxic chemical spills, man-made earthquakes) or discrimination (e.g. firing or
mistreatment on grounds of race, religion or gender), the number of people
without the means to compel effective remedy from abusive EU-based companies
continues to grow.
Whilst Dieselgate finally sparked
legislative movement on collective redress from the European Commission, the
proposal remains restricted to consumer harm, contrary to previous
recommendations for a general, horizontal scope from the EU Fundamental Rights
Agency, the European Parliament and Council of Europe.
Now this limited proposal must
survive eleven months of intense lobbying to pass through the Brussels
machinery. It is therefore crucial to get the facts and arguments concerning
collective redress straight, in order that the proposal survives intact, and to
ensure future developments of collective redress in the EU do not continue to
be plagued and delayed by fears of “abusive litigation” that harms
businesses.
When uttered in Europe, the term
“class-action” has the potential to cause policy-makers to shiver in their
boots. It’s a scary word – synonymous with the litigation excesses of wild-west
North America where the financial stakes are alarmingly high and collective
claims come easy – meaning large, ill-founded and frivolous lawsuits.
This narrative is the result of
committed work by groups such as the so-called European
Justice Forum (“the
only European organisation solely focused on promoting a balanced system of
Justice”), whose corporate membership includes Big Tobacco, Big Pharma
and Big Chemical.
Alongside the Chamber Institute for Law Reform (an affiliate of the US Chamber
of Commerce, whose campaign against collective redress is global) they have had
impressive successes in conflating the mere existence of class-actions with
litigation abuse (the probable reason why Europeans tend to favour the term
“collective redress”).
Their influence includes the
watering-down of a 2013 legislative proposal for “horizontal” compensatory
collective redress from the European Commission that covered all types of harm
(consumer, environmental, labour, discrimination, digital privacy etc.) to make
it a non-binding recommendation. Ironically the non-binding nature of the
recommendation was probably a good thing for victims of corporate malpractice,
because such was the influence of the business lobby on the final drafting of
the recommendation text, that it basically reads as a wish-list of restrictions
imposed on plaintiffs, styled as “safeguards against abusive litigation” and
sold as saving Europe from the abuses to corporations taking
place across the Atlantic.
The restrictions were multiple and
varied and included a preference for opt-in over opt-out (victims aren’t
automatically in a lawsuit when harmed but must sign up); a prohibition on
contingency fees (disallowing claimants from funding cases with their potential
winnings): limitations on standing (favouring government certified
representative bodies over ordinary citizens); a prohibition on punitive
damages (designed to punish guilty corporate defendants): a prohibition on
third-party litigation funding (helpful for victims that cannot get legal aid
or otherwise fund their cases); and an insistence on the loser pays principle
(meaning the losing party pays all the legal fees of the winning
side).
Setting aside the question of the
true extent of the abusive litigation phenomenon in the US – and to what extent
it is a story perpetuated by Hollywood-produced legal drama and scandal-hungry
tabloids – the somewhat hysterical narrative completely ignores the key
difference between US and European legal systems. That is the pre-existing
loser-pays principle – a long-time staple of the European legal tradition that
requires the losing party to cover not only its own costs, but also those of
the winning party.
Under the loser-pays principle,
absent in the US, no sensible plaintiff or lawyer would bring a big and costly
case that has a limited chance of winning, ensuring frivolous claims become
effectively dis-incentivised. That is, unless the plaintiff is a powerful
corporation whose objective isn’t actually winning a case, but rather draining
the time and resources of a weaker, critical plaintiff in a SLAPP suit.
In January 2018 the Commission
reviewed the impact of the 2013 collective redress recommendation, basically
admitting that it was a flop. In over four years just three Member States had
enacted new collective redress legislation. The study (the most comprehensive
empirical investigation into collective redress in the EU to-date) found one
third of Member States still without any form of collective redress at all; and,
where it is available it is typically limited to injunctions not enabling
compensation for victims; furthermore its availability is often restricted to
just a certain sector (for financial investors in the case of Germany, for
instance).
Interesting is that more than three
quarters of the study respondents (which included judges, plaintiffs,
defendants and their lawyers, as well as academics) did not report any
instances of abusive litigation in the EU, and the 14 respondents who did refer
to the risk of abusive litigation pointed to potential risks rather
than actual instances.
Yet even more interesting is that
many Member States with collective redress actually disregarded the Commission
recommendation “safeguards to abusive litigation” (by for example permitting
opt-out, contingency fees and third-party funding for plaintiffs) preferring
instead a design that would enhance the ability of victims to enforce their
rights vis-à-vis well-resourced corporate defendants.
The common result in those countries
(such as Portugal, Sweden, Denmark, the Netherlands): enhanced access to
justice for victims and not one single cited instance of abusive litigation
against companies. By way of comparison, corporations in the EU often bring
vexatious, abusive lawsuits against NGOs and journalists who report on their
malpractice in the public interest, wasting the precious time and resources of
said organisations, as well as those of the EU courts (leading to calls
for legislation).
Finally, numerous respondents to the
study also explained that the potential of collective actions to generate
abusive litigation is rather limited in Europe, due to the aforementioned
fundamental differences, meaning the situation is in its whole incomparable to the
US. One respondent summarised that, “there is more of a risk of inadequate
collective redress mechanisms and a lack of litigation than a risk of abusive
litigation.”
In comparison to the United States,
where litigation procedure may well have developed in a manner too
encouraging for claimants and unfavourable for business, in Europe the problem
is exactly the opposite. The reality in Europe is that it is exceedingly
difficult, commonly impossible, for victims to bring a collective redress claim
for mass harm situations and often go without remedy.
VW is just the most recent example,
there are, and will continue to be, many others involving different forms of
harm other than consumer, such as environmental. Whilst homeowners in the
Netherlands are able to seek compensation through collective redress from Shell and Exxon mobile for shale gas drilling (the cause of
over 1000 man-made earthquakes damaging over 50,000 properties since the 1990s)
residents in Romania and Ireland, where such companies also reap profits from
the use of the destructive technology, would not be able to, because
compensatory collective redress is not available (and will not be under the
current Commission’s consumer proposal). In the EU Single Market access to
effective remedy for victims of corporate harm is a lottery.
So, on the one hand are abusive
companies who cannot be compelled to remedy, and on the other is abusive
litigation. What European policy makers need to realise and remember is that
presently Europe has an actual problem with the former and only a hypothetical
problem with the latter. Sadly, this important point will struggle for oxygen
in the face of intense lobbying from powerful corporations and their lobby
groups.
The so-called European Justice Forum
and U.S Chamber institute for Law Reform have been very effective in making the
case against allowing victims to efficiently join their cases together in
litigation (which would economise judicial procedure in the process), and have
been promoting instead “Alternative Dispute Resolution”. The contradiction in
their position is, however, that Alternative Dispute Resolution is by
definition meant as a practical alternative to effective
litigation. Alternative Dispute Resolution did not begin as a parallel system
of justice to the courts; it emerged to complement effective litigation
procedures.
One cannot have alternative dispute
resolution unless the possibility of effective litigation concurrently exists;
otherwise this is just non-judicial “dispute resolution”. Naturally it is not
in the interests of either party to a dispute to spend time, money and
resources going through the courts. Yet without the possibility of going to
court to effectively assert one’s legal right to a proper remedy (a fundamental
democratic right in and of itself), there is no real or meaningful impetus for
corporations to even arrive, let alone properly negotiate, at the alternative
dispute resolution table. Once again, VW is just the most recent example of
that fact.
It’s time to look to the future of
collective redress in the EU on the basis of the evidence. Victims of corporate
abuse – in all member states and for all types of harm – need enhanced
collective redress in order to be able to obtain effective remedy and
compensation. This concerns society as a whole, whereas in the absence of fines
from government agencies, abusive corporations will continue to retain their ill-gotten profits, further emboldening and empowering them; encouraged and undeterred.
The victims of corporate abuse must be helped to gain justice and remedy,
instead of being pre-emptively blamed for litigation abuse against big
corporations.