The possibility of an EU-wide mass claims system has been on the European Commission radar for years and is once again bouncing back with a forthcoming communication from the Commission expected to be published by June this year. It will probably state the obvious and not take any decisive step towards one particular mass restitution scheme.
At the end of January, FERMA attended a major conference on collective redress hosted by Swiss Re in Zurich and chaired by Oxford University. It brought together various stakeholders on an EU level: academics, insurers, industries and professional associations.
There is quite a wide consensus that no one in the EU wants a pure US style collective action system. Everybody is well aware of its excesses and its detrimental effects on companies and consumers as well.
One of the responses in Europe to these excesses could be to introduce numerous safeguards to keep private litigation under a tight control. This could be done through a pre-court approval, the “loser pays” principle or the prohibition of punitive damages. But here’s one paradox about collective action: the more safeguards it has, the less collective action works. Controls can be so effective that the restrictions are too heavy and impose even longer delays.
Private litigation has also two serious flaws. One is the transactional cost. Even before the customer can achieve any positive result in court, he or she will spend a great amount of money on legal fees. The second major flaw is the duration. Court action is time consuming, and it’s no secret that courts across Europe are already flooded with cases and have limited resources.
On another hand, the major lesson of the Zurich conference was that out of court settlement is the best compromise to reconcile the consumer’s interest with legal certainty for companies through a fast, reliable and cheaper collective redress system.
Alternative dispute resolution (ADR) such as arbitration and mediation, along with public regulators and ombudsmen. offers a wide range of solutions that are flexible and can fit any of the 27 national legal systems across the EU.
Finally, compliance must remain a priority for companies and first of all as a reputational tool. ADR systems aim to eliminate any financial gain or benefit from non-compliance, but the risk culture of every company should also spread the idea among its managers that non-compliance never pays off.