INTRODUCTION1
As national class actions duel in Canada, there is no better time to look to Europe. The current state of collective redress in Europe is a jurisdictional nightmare. Countries are rapidly introducing diverse legislation that authorizes collective actions. At the same time, these countries are subject to the laws of the European Union. Multi-jurisdictional issues arise when collective actions cross borders. Current European Union legislation does not effectively address multi-jurisdictional issues and harmonizing legislation is not forthcoming. The combination of these factors creates uncertainty for plaintiff and defendant class action counsel. However, the pending approval of Europe's first worldwide opt-out class action settlement may be a turning point and the first step towards a unique solution to many multi-jurisdictional challenges.
The Diverse Approaches to Collective Redress in Europe
The past five years have brought about rapid change as many European countries have introduced legislation to authorize collective actions. Attached to this paper is a chart that summarizes the legislation of each Member State of the European Union ("the E.U.").
Collective redress legislation in Europe varies from country to country as widely as history, culture and language does. For example, Ireland authorizes only a representative action brought by the Director of Consumer Affairs for an injunction2 whereas Sweden has developed a North American-style class action regime on an optin basis.3 Broadly, however, the various mechanisms can be divided into the following three categories.4
Representative Actions are actions brought by an organization on behalf of a group of individuals, typically consumers. Remedies are restricted to injunctions, however, several countries also permit recovery of monetary damages in very limited circumstances.5 Representative actions are the most common form of collective redress in Europe and also the most uniform, which is likely a result of the E.U.'s Injunctions Directive, discussed below.6
The Test Case mechanism permits individuals who have filed separate actions to agree that one individual action forms a model proceeding for the other individual actions against the same defendants. The outcome of the first individual action is only binding on those individuals that have joined the test case register. Germany has developed a test case mechanism for cases in which a series of investors have suffered similar damages relating to securities law.7
Group Actions bear the closest resemblance to North American class actions. Individuals may bring an action for monetary damages on behalf of a group of individuals. Generally, however, group actions are opt-in, rather than opt-out, which means that the decision or settlement is binding only on those who have expressly joined the class.8 Sweden has developed an opt-in regime and the Group Litigation Order ("the GLO") mechanism of the United Kingdom ("the U.K.") is comparable to an opt-in class action without a representative plaintiff, which means that each plaintiff is a party instead of a represented non-party.9 Several European countries have versions of opt-out class mechanisms, however, these actions differ from North American opt-out actions.10 For example, Denmark and Norway permit opt-out actions in very limited circumstances, such as where the claims are of particularly low value.11 Therefore, even within this category, there is a wide variance between countries.12
The Netherlands' approach to collective redress does not fit into any of the above categories but also warrants discussion. The Dutch Act of Collective Settlements,13 in force since 2005, was enacted primarily to facilitate a mass torts settlement. In the Netherlands, six daughters of women who had taken diethylstilbestrol ("DES") during pregnancy successfully brought an action for damages against the drug's producers. Faced with indeterminate liability to other users, the producers negotiated a settlement with insurers whereby a settlement fund was created. The problem was that the Netherlands only permitted representative actions for injunctive relief, not for monetary damages.14 In order to ensure that the settlement survived, the Dutch legislature enacted the Act of Collective Settlements. This legislation does not authorize opt-out class actions. Rather, it permits parties who have reached a settlement for monetary damages to petition the court for approval on an opt-out basis. Two settlements including the DES settlement have been approved so far and a third, the Royal Dutch/Shell settlement, is pending approval.15
These diverse mechanisms for collective redress can co-exist harmoniously if the actions stay within the confines of national borders. As soon as cross-border actions are launched, however, it becomes necessary to look to the E.U. for guidance.
Seeking Guidance from the European Union on Multi-Jurisdictional Issues
The European Commission can propose legislation which, if adopted by the European Council and Parliament, becomes binding on Member States. This legislation may take the form of a directive, which permits the Member States a specified time to implement its own legislation under that directive, or a regulation, which is applied directly by each State.
Current E.U. legislation does not effectively address the multi-jurisdictional issues of cross-border collective actions for monetary damages. Directive 98/27/EC on injunctions for the protection of consumers' interests16 harmonizes the law with respect to representative actions for injunctive relief. "Qualified organizations", as determined by Member States, may bring actions for injunctive relief on the basis that specific E.U. consumer laws have been violated.17 The directive also requires each Member State to develop a procedure whereby qualified entities of foreign States may seek an injunction when the infringement originates from that Member State.18 To date, one cross-border injunction has been sought and obtained. The U.K.'s Office of Fair Trading (OFT) obtained an injunction against a Belgian company that sent unsolicited mail order catalogues with prize notifications to U.K. residents. The Belgian court issued an order banning the practice as a breach of the E.U.'s Misleading Advertising Directive.19 As its name suggests, however, the Injunctions Directive has no application to cross-border class actions for monetary damages.
Council Regulation EC 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters20 orders Member States to recognize foreign judgments. The Regulation, which came into force in 2002, provides that a judgment given in a Member State shall be recognized21 and enforced22 in other Member States without any special procedures, as long as original jurisdiction has been established.23 Settlements approved by a court that are enforceable in the Member State shall also be enforceable as an authentic instrument in another Member State.24 However, the Regulation provides that a court shall not recognize a judgment of another State where to do so would be contrary to public policy in that State.25 At first glance, this Regulation appears to provide that if a national court issues a judgment in a pan-European collective action, that decision must be recognized and enforced throughout Europe. However, it is uncertain which court has original jurisdiction over a pan-European collective action. Even more uncertain is whether another Member State with opt-in legislation may decline to recognize an opt-out judgment or settlement on the basis that it is contrary to public policy.
Therefore, existing directives and regulations leave many multi-jurisdictional issues unresolved. It becomes necessary to determine whether the E.U. will consider harmonizing the laws relating to collective redress in Europe.
Proposals and Debate Regarding European Union Harmonizing Legislation
The European Commission has proposed harmonizing legislation in the area of antitrust collective actions for monetary damages. In its Green Paper published in 200526 and its White Paper published in April of 2008,27 the Commission acknowledges the importance of collective redress in anti-trust law. The Commission suggests two complementary mechanisms of collective redress in this area: representative actions, which are brought by qualified entities such as consumer associations on behalf of identified victims; and opt-in collective actions, in which victims expressly decide to combine their individual claims into one action.28 The Commission also suggests that every Member State should accept a final decision taken by a national competition authority and upheld by a review court as irrebuttable proof of the infringement in civil damages cases29 and encourages Member States to permit national courts to issue costs orders that derogate from the normal cost rules, where justified.30 While not law, a White Paper can lead to an action programme for the E.U. and may be developed into law if it is favourably received by the Council.31
The Commission has also indicated that it will be considering action on collective redress for consumers in a Communication in late 2008.32 While the possibility of collective action with regards to liability for defective products was discussed in the Commission's Green Paper published in 1999,33 a subsequent report from the Commission in 2001 stated that such actions would not be appropriate at that time.34 This issue should arguably be revisited now that more European countries have enacted collective action legislation. Other E.U.-related organizations have also advocated for harmonizing legislation.
The Organisation for Economic Co-operation and Development (OECD) has recommended that consumers have access to collective redress mechanisms that provide meaningful relief.35 The European Economic and Social Committee issued its opinion on consumer collective actions that the existing legal systems of Member States providing judicial remedies to protect collective interests are "rather disparate and give rise to clear differences in the protection of these interests" and that "these disparities are the cause of distortions in the operation of the internal market."36 The Committee opines that collective actions should be introduced by way of a regulation or a directive, which would follow up on the Injunctions Directive.37
The Jurisdictional Competence of the European Union to Enact Harmonizing Legislation
While there are many advocates for a harmonized collective action regime, the critical issue of the E.U.'s jurisdictional competence to enact harmonizing legislation remains unresolved. 38 There are two limits to the jurisdiction of the E.U. to make laws. First, the E.U. may only enact legislation when it has jurisdictional competence which is found in a treaty. Second, the E.U. is subject to the principle of subsidiarity, which states that the E.U. may only make laws where objectives would be better achieved at the Community level than by Member States.39 The opinion of the European Economic and Social Committee is that jurisdiction may be found in Title XIV of the EC Treaty entitled "Consumer Protection", specifically Articles 65 and 67, concerning judicial cooperation in civil matters having cross border implications.40 Without legislative action from the E.U., however, the jurisdictional question remains unanswered.
Europe's Multi-Jurisdictional Nightmare Explained
The current situation in Europe regarding collective redress creates troubling uncertainty for plaintiff and defendant class action counsel in the following way. As previously discussed, national collective action legislation varies widely from country to country. Further, even the implementation of directives varies within Europe, as the E.U. cannot require Member States to adopt judicial procedure.41 Since causes of action are becoming increasingly global, cross-border collective actions will likely be the norm. Regulation EC 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters requires judgments originating from one Member State to be recognized and enforced in another Member State, subject to the public policy exception. However, since national procedural laws also vary widely -for example, res judicata has no application in the continental civil law countries like France and Italy- it is unclear whether decisions or settlements reached under one collective action regime are enforceable in other countries. From the perspective of the plaintiff's counsel, a judgment or settlement has little value if it cannot be enforced in other countries.
From the perspective of the defendant's counsel, a judgment or settlement must provide finality with respect to the litigation. If a settlement has no ability to preclude new actions in another country, then the defendant has far less incentive to work towards a settlement of the action.
Therefore, counsel will likely remain hesitant to get involved with European class actions until some of these issues are addressed.
The Royal Dutch/Shell Settlement May Be a Turning Point
The approval hearing of the worldwide class action settlement in the Shell securities litigation may be a turning point and the first step toward a unique solution to many multi-jurisdictional challenges in Europe.
In January of 2004, Royal Dutch/Shell announced the re-categorization and reduction in its oil reserves, which resulted in a sharp drop in share price as well as the resignation of three Shell executives. Securities class actions were subsequently filed in the United States ("the U.S.") for losses connected to the drop in share price. One of these class actions was filed by numerous European institutional investors. Shell reached settlements with the U.S. investors and the European investors. The European settlement is actually a worldwide (excluding U.S. claimants) opt-out settlement involving 29 European shareholder organizations from nine different countries. Under the terms of the settlement, Shell has agreed to pay US$352.6 million, plus administrative costs, to non-U.S. investors who suffered damages because of the alleged non-compliance with securities regulations. Shell has also agreed to request that the United States Securities and Exchange Commission ("the S.E.C.") distribute to shareholders the US$120 million paid by Shell in 2004 under a consent agreement resolving the S.E.C.'s investigation into Shell.
The parties brought a petition under the Dutch Act of Collective Settlements seeking approval of this worldwide settlement. The petition will be heard by Amsterdam Court of Appeals on November 20, 2008.
The settlement raises a multitude of jurisdictional issues. The most fundamental question at the hearing will be whether the Amsterdam Court of Appeals has the jurisdiction to approve the settlement on an opt-out basis for all European class members. A second and equally important issue is whether the settlement precludes litigation by individuals in other countries,42 especially as new class action legislation is enacted. While judgments of Member States are recognized by other Member States, does a settlement-only ruling without any litigation before the court garner the same respect?43
Regardless of the outcome, the hearing provides the impetus to resolve these multijurisdictional issues. If the Court of Appeals approves the settlement on a worldwide opt-out basis, and it is recognized by other Member States, this means that the unique structure of Europe has actually facilitated the operation of cross-border class actions.44 It will also likely mean that the Netherlands is the ideal forum in Europe to settle European class actions for the time being.45 On the other hand, if the Court of Appeals declines to approve the settlement on worldwide basis, Shell will likely walk away from the settlement. Such upset will force the E.U. to step in and provide much-needed guidance to its Member States.
CONCLUSION
Currently, the combination of new and diverse national collective action legislation, binding E.U. directives and a lack of harmonizing legislation raises many multijurisdictional issues in Europe. These unresolved issues have created troubling uncertainty for both plaintiff and defendant class action counsel. However, the pending approval of the Royal Dutch/Shell settlement provides the impetus for a resolution of this uncertainty. Depending on the outcome of the settlement hearing, the very structure that creates jurisdictional issues for Europe may actually be the key to a unique solution to cross-border collective action. And if Europe is able to coordinate the operation of the class action regimes of 27 countries, there is no reason why Canada cannot coordinate the regimes of 12 provinces.
Footnotes
1 The authors gratefully acknowledge the assistance of Lynda Morgan, a Student-at-Law at Lerners LLP (Toronto), in completing the research for this paper.
2 Consumer Information Act 1978; Unfair Terms in Contracts Regulations 1995.
3 Swedish Group Proceedings Act, SFS 2002:599.
4 This categorization is substantially the same categorization used in: J. Stuyck and others, Commission Study on alternative means of consumer redress other than redress through ordinary judicial proceedings (Catholic University of Leuven, January 17, 2007, issued April 2007).
5 See Germany, for example, where disgorgement of "ill-gotten gains" is given to the Federal budget; see also Greece, Norway.
6 Christopher Hodges, "Global Class Actions Project: Summary of European Union Developments", Centre for Socio-Legal Studies, University of Oxford, p. 10 [Hodges].
7 Capital Markets Model Case Act, in its five-year pilot stage (see http://www.bundesjustizministerium.com/files/-/1056/EnglishInfoKapMuG.pdf ).
8 See, for example, Sweden, Finland and Italy (pending revision before coming into effect in 2009).
9 Civil Procedure Rules 1998, Part 19, Section III; See also James M. Newland, Brian P. Moher and Donna A. Polgar, "Group Litigation in the United Kingdom: a Sheep in 'Woolf's' Clothing" (2006) 5 Class Action 310.
10 See Portugal, Denmark and Norway.
11 Administration of Justice Act (Denmark), Pt. 23, Act No. 181; Chapter 35 in the Dispute Act of 2005.
12 Hodges, note 5, p. 9.
13 Act on Collective Settlement of Mass Damages, Dutch Civil Code (Burgerlijk Wetboek) Arts. 3:305a and 305B.
14 Dutch Civil Code 1 July 1994, 3:305a/b Civil Code, .6:240 Civil Code.
15 See James M. Newland, Brian P. Moher and Jason W. Reynar, "A Touch of Dutch: Group Actions in the Netherlands" (2007) 2 Class Action 394-398.
16 Directive 98/27/EC [Injunctions Directive].
17 Injunctions Directive, art. 2.
18 Injunctions Directive, art. 4.
19 Office of Fair Trading, "OFT Wins First Ever European Cross-Border Action," 15 December 2004, http://www.oft.gov.uk/news/press/2004/208-04 .
20 Council Regulation (EC) NO 44/2001 [Council Regulation].
21 Council Regulation, art. 33.
22 Council Regulation, art. 38.
23 Council Regulation, art. 35.
24 Council Regulation, art. 58.
25 Council Regulation, art. 34.
26 Commission of the European Communities, Damages Actions for Breach of the EC Antitrust Rules, COM (2005) 672.
27 Commission of the European Communities, Damages Actions for Breach of the EC Antitrust Rules, COM (2008) 165 and Commission Staff Working Paper accompanying the White Paper, SEC (2008) 404 [White Paper].
28 White Paper, p.4.
29 White Paper, p.6.
30 White Paper, p.10.
31 http://europa.eu/scadplus/glossary/white_paper_en.htm .
32 "Empowering consumers, enhancing their welfare, effectively protecting them", Communication from the Commission to the Council, the European Parliament and the European Economic and Social Committee, EU Consumer Policy Strategy 2007-2013, p.11; See also Staff Working Paper, SEC (2008) 404, p.22, para. 63.
33 Green Paper on liability for defective products, COM(1999)396 final, pp. 31-33.
34 Report from the Commission on the Application of Directive 85/374 on Liability for Defective Products, COM(2000) 893 final, pp. 26-27.
35 OECD Recommendation on Consumer Dispute Resolution and Redress, 2007, p.10.
36 Opinion of the European Economic and Social Committee on Defining the collective actions system and its role in the context of Community consumer law (Own-initiative opinion), 2008/C 162/01, 3.4 and 3.41 [EESC Opinion].
37 EESC Opinion, 4 and 8.3.
38 Hodges, note 5, p.6.
39 http://www.europarl.europa.eu/facts/1_2_2_en.htm .
40 EESC Opinion, 6, 8.2
41 Laurel J. Harbour, Marc E. Shelly, "The Emerging European Class Action: Expanding Multi-Party Litigation To A Shrinking World", presented at the 2006 ABA Annual Meeting, Section of Litigation, August 3-6, 2006, p.2.
42 Paul Olden, "What about us?", Funds Europe, June 2008 [Paul Olden].
43 Paul Lomas, Mira Raja and Roelien van den Berg, "Transatlantic class actions: sailing into uncharted waters", Freshfields Bruckhaus Deringer, at http://dispute.practicallaw.com/8-364-6017 .
44 Daan Lunsingh Scheurleer, Ianika Tzankova, "Way of the future", IFLR, October, 15 2007, p.46 [Way of the Future].
45 Way of the Future, p.46; see also Paul Olden.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
