European Union: Europe Is Waking Up To The Need For Effective Class Actions

Proposed directive will offer consumers 'new deal' on collective redress.

One unintended effect of the so-called Dieselgate scandal has been to highlight the lack of effective class action mechanisms in Germany and, indeed, the rest of the European Union. This deficit is being addressed and will lead to significant changes in 2019.

In Germany, a new consumer class action framework has been created: Musterfeststellungsklage, which translates into English as Model Declaratory Proceedings (MDP). Pre-MDP, German law specified that potential claimants against VW had just three years to file for compensation. MDP's introduction in November 2018 enables collective actions against car manufacturers to be launched before the time-bar at the end of the year.

Shareholders are able to launch collective actions under the so-called Kapitalanleger-Musterverfahrensgesetz (KapMuG) proceedings, however, MDP and KapMuG are more limited forms of collective redress compared with class action mechanisms in the US and Australia.

With Dieselgate in the background, the European Commission is looking at a directive on collective redress under its 'new deal for consumers'. The plans published so far are similar to MDP but they go beyond it. Depending on the type of claim, the Commission is considering options for claimants to pursue collective damages in certain circumstances. While there is more to come on collective redress in Germany, the next change to impact on insurers is more likely to come from the EU.

We are seeing a step change in Europe's litigation industry. Litigation funders and platforms combining with new class action options are forming a growing trend of collective redress. The net result will be increased liability exposure for commercial clients as the hurdles for European consumers to embark on this type of action are lowered.

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