Collective redress in Europe

Willem van Boomwww.professorvanboom.eu

Contents of todayContents of today’’s lectures lecture

USA class actionUSA class action

EU systems of collective redressEU systems of collective redress

Dutch Collective Settlements Act (WCAM Dutch Collective Settlements Act (WCAM 2005)2005)

Cross-border collective redress in EuropeCross-border collective redress in Europe

Class action USA-styleClass action USA-style‘named plaintiff’ and ‘lead attorney’ petition the court

Aim: ‘certification’ of the ‘class’– Clearly circumscribed group of individuals– Facts and points of law that are common to all (‘commonality’)– plaintiff & attorney must have ability to represent and ‘manage’ the

class’

In theory, after certification follows trial on the merits of the case– In practice, certificiation is often followed by a settlement and

approval by court– Approved settlement binds all individals concerned

‘Individual notice’ to class members concerning the right to opt out

Position of the defendant? Class can be certified whether he likes it or not

European models

• Most legal systems have a system of group action by association/foundation for the benefit of multiple individuals– Prohibiting or demanding certain behaviour– Non-compliance sanctioned with penalty payments

• But claiming compensation through such group action is considered to be more difficult

• Why? Claims for compensation in tort or contract are considered individual rights– Individual requirements of liability, causation, damage etc.– Individual cause of action, individual summons, individual verdicts

But there is an increasing number of collective redress procedures

Aim: obtaining collective compensation for torts / breach of contract

Generic systems vs. Sector-specific systemsGerman securities test case Act (KapMuG)

Dutch Collective Settlement Act

Opt in systemsIndividual claimants have to actively consent to being part of a group of litigants

The resulting court decision binds all the litigants in the group (res judicata) but not others

Opt out systemsIndividual claimants have to opt-out if they do not want to be bound to the collective redress

Advantages and drawbacks

Opt-in leaves autonomous choice with individuals– However, where pursuing individual claims is

risky and costly, there is little ‘choice’

Opt-out is more efficient and saves costs for individual claimants and defendants– But who guarantees that individual claimants

get a fair deal?

Debate in EuropeDebate in EuropeEU member states have their own systems

EU does not want a USA-type class action– Because it is fuelled by greedy lawyers– Because it stimulates compensation culture not business

culture

But the EU does want an efficient system to compensate where wrongs are committed– But EU does not know how!– Latest debate paper: Public consultation “Towards a

Coherent European Approach to Collective Redress”

Does the EU want a uniform procedure or a competition of procedures?

The NetherlandsWCAM 2005

(allegedly) liable party negotiates a settlement for compensation of multiple injured individuals

The settlement is negotiated with a representative association / foundation (which does not need to have consent of individuals!)

The settlement is a contract – Parties can choose applicable law

– Parties can insert damage schedules, an ADR system for conflicts with individual claimants

The parties to the contract jointly petition the Amsterdam Court of Appeal (CA) in a special petition procedure (not a summons procedure)

CA orders the petitioners to notify identifiable interested parties (the individual claimants)

– Notification of identified individuals by means of ordinary mail or other method if court so orders

– Announcement in newspapers– Interested parties are invited to submit arguments to the CA

CA can declare the settlement binding for all interested parties– CA hears all the evidence and tests fairness of the settlement: risks and benefits

‘in the shadow of the law’ – Settlement is always negotiated in uncertainty: individuals may or may not get

higher compensation (or nothing!) if they litigate individually

If settlement is declared binding:– interested parties are notified; they are given a period to opt-out from settlement– If they opt out, they retain their individual claims for compensation– If they do not opt out, their original rights (if any) are extinguished but they keep

the compensation from the settlement – The settlement can not be nullified (except for fraud)

Class action vs WCAMClass action vs WCAMUSA class action starts with certification and ends with opt-out

After certification, the questions of liability and damages must be addressed

WCAM also ends with opt-out but starts with a totally voluntary settlement agreement

So the WCAM does not address the question whether there really is liability and what the individual damage is

By settling, this uncertainty is voluntarily transformed into certain obligations

(allegedly) liable party weighs the costs and benefits of the settlement against litigating all individual claims

Therefore: WCAM may not always work with ‘small claims’

If individual claimants consider to opt out, they will have to weigh their chances: will they be able to get more compensation in an individual court case?

Cross-border collective redressConverium case (CA Amsterdam 2010)

IPO of IPO of ConveriumConverium shares at Swiss Stock Exchange shares at Swiss Stock Exchange

USA securities regulations were violated (misleading investors)USA securities regulations were violated (misleading investors)

Class action in NY USA; court denies jurisdiction for investors not Class action in NY USA; court denies jurisdiction for investors not residing in USA who had bought outside USAresiding in USA who had bought outside USA

Settlement according to Dutch law between liable parties and Dutch Settlement according to Dutch law between liable parties and Dutch Association for Stock Investors, covering all non-US investorsAssociation for Stock Investors, covering all non-US investors

Notifications to investors all over the world (either by letter or service) Notifications to investors all over the world (either by letter or service)

– The Netherlands : 204 letters

– EU member states (EU Service Regulation): 2452 service documents

– Non-EU member states party to the Hague Service Convention 1965: 8859 service documents, 365 registred letters

– Various other regimes: 127 registred letters, 181 ordinary letters

– Announcement in 19 internationa newspapers and 4 websites

Does the Amsterdam CA have jurisdiction to hear this petition and declare the settlement binding?

CA says yes and considers:– There is a need for a global settlement system outside USA for non-

USA claims – This is a petition concerning a contract (the settlement) according to

Dutch law which will be performed in NL– Therefore the competence of court is ruled by art. 5 Regulation

44/2001 on jurisdiction, recognition & enforcement of judgments in civil and commercial matters (Brussels I Reg.)

– Moreover, some individuals have residence in NL (= art. 2)– Individual claims are connected, so art. 6 also applies– As concerns individuals in non-EU countries, Dutch national rules on

jurisdiction declare the CA competent if one of petitioners is Dutch resident and the case has sufficient connection with NL

What will happen next? Assuming court documents were properly served to

individual claimants (at beginning & end), will other (EU) courts allow this cross-border collective redress ross-border collective redress ?

Would they assign res judicata effect (preclusive effect) to the Amsterdam CA binding declaration?

Is the CA binding declaration a ‘judgment’ pursuant to art. 32?

Is the mere fact that other EU member states do not have an opt-out system, sufficient reason to declare the Dutch decision ‘contrary to public policy’? (art. 34)

Free movement of judgments vs principle of autonomous choice of individuals

What if other EU MS introduce a similar system? Competition, coordination or harmonisation?

Thank you for your attention!

Willem van Boomwww.professorvanboom.eu