In January, FERMA attended a conference on collective redress in Zurich. That was the occasion for the industry to think collectively about the unintended consequences of a new mass restitution scheme being put forward by the European Commission. In June, the Commission released its awaited communication on the subject, which actually took the form of a recommendation.
The choice of a recommendation is interesting, because this is a non-binding legal instrument. It indicates how member states should establish a collective redress system at national level, but does not attempt to configure a uniform, EU-wide collective redress system.
The Commission took into account the member states’ differing legal traditions and is only setting out principles that should be common across the EU relating to both judicial and out-of-court collective redress.
The scope of the recommendation is very wide; the principles apply to every sector. This is what the Commission is calling a coherent horizontal approach, that does not harmonise member states’ systems. Financial services and the environment are explicitly mentioned in the document.
On the bright side, the Commission has listened to the various concerns expressed by both the industry and the public authorities.
Avoiding excesses
It has introduced fundamental safeguards that should be part of any national redress mechanisms. These specific safeguards are intended to avoid US style excesses and frivolous and expensive claims.
The “opt-in” framework is one of these. The group of claimants is to be clearly identified on the basis of an express consent (Article 21). Making the loser pay costs (Article 13) is a second safeguard, and finally punitive damages are prohibited (Article 31). The general idea is that collective redress should not become a profitable industry for some professions.
As FERMA and industry in general have always proposed, the recommendation puts forward the use of alternative dispute resolution (ADR). To facilitate its deployment, normal time limits within which claims must be made will be suspended while the parties attempt to use ADR. (Article 27).
Member states have two years to implement the principles of the recommendation, and based on the results of this, the European Commission will decide within four years (June 2017) if further legislative action is needed.
Overall the recommendation looks good, even if it is possible to regret the central role given to the courts when they are already flooded with cases and under budget constraints. FERMA believes that nothing beats the effectiveness of the combination of ADRs and sound compliance policies in terms of time resources. We do really wish that the recommendation as presented now will not form the basis of minimum harmonisation legislation four years from now.
In a nutshell:
- Collective redress
- Commission recommendation issued
- Implementation: two years
- Reconsideration: four years