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Developing EU collective redress procedures for consumers
In an enlarged EU market with growing exchange of similar goods and services, collective redress procedures are important for the effective functioning of a consumer dispute resolution system. These procedures present several advantages, but may also require specific safeguards.
Collective action procedures could provide an incentive to participate jointly in litigation cases, as this would be a means of spreading litigation costs and risks among individuals. These procedures may also increase the prospect of success for consumers. For example, a large number of individuals presenting common symptoms of an illness, or showing similarities in the harm received, may find it easier to prove the existence of the damage and the causal link with a certain product.
Secondly, these mechanisms may, to a certain extent, redress an asymmetrical balance of power between the consumer and the firm, due to the fact that the latter generally has access to greater resources and information to defend its interest.
Thirdly, collective redress may contribute to procedural economy and to legal certainty. For damages affecting numerous people, similar individual claims would be a major burden for the judicial system, and may lead to inconsistency in the case law. Thus, collective redress mechanisms may be a way to increase the effectiveness of the judicial procedure by saving resources, speeding up the judicial process, and increasing coherence.
Finally, collective redress mechanisms can have a deterrent effect on businesses and may exert a regulatory function on the market. Without this pressure, companies might be less inclined to comply with protection standards, which can lead to unfair trade practices and distort competition. Thus, collective actions may be a means of market control in cases of insufficient oversight by public bodies, and can achieve a better compliance, preventing future harm to consumers.
Nonetheless, these procedures have been controversial as they may entail several risks requiring safeguards to prevent excessive claims. For example, it has been suggested that they might lead to an over-regulation of the market. While in the US class actions were established to compensate for the government’s relatively light-handed approach, the EU already has strong administrative protection for consumers, so collective actions may overload the judicial system. Although these aspects need to be taken into serious consideration, recent market failures in the product safety and financial sectors indicate that the public control mechanism does not always seem to function in the EU. Furthermore, the proliferation of collective redress schemes in Member States reveals a real need for these new enforcement methods.
Another risk of collective redress mechanisms is that they could lead to abusive practices. On the one hand, the representative of the group might take advantage of the situation at the expense of the consumer. Yet, this may be prevented by a compulsory judicial review of redress settlements, as is already the case in some national procedures. On the other hand, collective redress might increase the financial risks for companies through high damages claims or ‘settlement blackmail’. The US-style class actions are often mentioned as an excessive model not to follow in this regard. However, the EU approach remains fundamentally different from the US class action system, so the risk of excessive claims remains limited. This is evidenced by the experience in Member States, where these cases have not constituted unreasonable costs for businesses or led to the bankruptcy of reputable companies.
The risk of abuse can also be prevented with the help of integrated safeguard measures, such as a mandatory assessment of the claim by a judge, at an early stage of the procedure, through formal ‘certification’. Other forms of
‘gatekeeper procedures’ can be achieved through the ‘loser pays’ principle and via the mandatory representation of collective claims by consumer organizations or public bodies. These safeguard measures have diminished the risk of unmeritorious claims in national systems. Thus, the argument that collective redress mechanisms per se overburden the legal system in the EU is questionable.
A balanced collective redress measure that respects pre-existing legal schemes in Member States and includes safeguards against abuses can facilitate consumer dispute resolution. This would spread litigation costs and therefore lead to easier access to justice for consumers. Nonetheless, a financial risk of long and complex court cases and the ‘loser-pays’ principle pose further barriers to the practical application of such procedures. Thus, cheap out-ofcourt schemes are, in addition, an important complement, leaving judicial collective actions as a last resort to the parties.
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