Michael Herman
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The European goal of creating a class action system with all the benefits and none of the disadvantages of the US model is a noble plan — but cracks are already beginning to show.
Despite insistence from the European Union, UK regulators and consumer associations that Europe can create a thriving but fair and controlled class action environment, it looks increasingly likely that even if we avoid embracing the US system in its entirety, some of its less appealing characteristics will feature in our own.
Critics of the US class action system highlight four main shortcomings: no adverse costs, jury trials with punitive damages, contingency fees and the “opt out” regime.
Some of these are more likely to cross the Atlantic than others. Europe’s adverse costs regime, which discourages baseless litigation by forcing the losing side to pay the winning side’s costs, is likely to stay. Likewise, jury trials awarding triple damages of the kind we see in the US is unlikely to become part of the European class action framework anytime soon because as well being unpopular, there is no legal mechanism in Europe to allow it.
But we should be on guard against signs that the other two perceived evils of the US model are becoming part of mainstream European thinking.
The first is the issue of “opt in” or “opt out”. There had been a general assumption that America’s opt out system — where any potential claimants are automatically included in a case unless they specifically opt out — would be treated with suspicion in Europe.
That changed recently, however, when Which?, the consumer association that is the only UK body allowed to bring class actions, called for Britain to adopt the US opt out system.
Its reasons for doing so are obvious. A recent class action against retailers and manufacturers who cheated football fans by overcharging for replica kits yielded distinctly underwhelming results. From a potential claimants pool — or “class” — of tens, if not hundreds of thousands, Which? persuaded less than 150 to join its lawsuit.
The case is continuing but it is looking increasingly like a failure. Instead of compensating consumers who lost out and simultaneously providing a deterrent to retailers against similar behaviour in the future, a handful of people will receive damages and the perpetrators will walk away — financially at least — virtually unscathed.
It is hardly surprising that Which? has called for a change of thinking. If all potential claimants are automatically included then, subject to employing clever economists to identify who these people are, lawsuits such as the football shirts claim would swell from tiny to significant numbers of claimants overnight.
What is surprising however, is that this change, however radical and dangerous it may seem, is not as unlikely as it sounds. The Office of Fair Trading is keeping quiet until it has finished consulting on the matter but signals are emerging that the regulator, itself disappointed by the football shirts take-up, is prepared to ask the Government to make the switch.
The final aspect that critics of the US system pick on is contingency fees, where the lawyers take a share of the winnings. It is this issue, coloured by constant reports of US lawyers earning tens of millions of dollars from single cases, that has caused the most concern in Europe.
Lawyers, Europeans say, should be kept independent and paid for their time and expertise. Since they have not been affected by the wrongdoing being sued for, they should not be entitled to share in the compensation.
Since contingency fees are still a contentious issue, no one (as far as I know) is publicly advocating that they be introduced in Europe. But what people are prepared to say in public on emotive issues and what they actually think are often not the same thing.
This week the Economist Intelligence Unit published a survey on class actions in Europe. Like many similar studies, it concluded that they are on the way and took pains to highlight that Europeans are wary of adopting the US system. But a closer look at the survey is telling. Of the 244 European lawyers and senior executives asked, 43 per cent said they believed that contingency fees were likely to be introduced. And since 27 per cent of respondents were either “neutral” or said they did not know, that left just 40 per cent who said they did not believe contingency fees were on the way.
Put another way, when asked in private, not what they think should happen, but will actually happen, more people said they thought that contingency fees were likely to be introduced than did not.
Whether or not the US system really is that bad and how alarmed we should be that Europe may be adopting parts of it is a separate debate. But for now, European complacency that we can get all the benefits without the costs looks misplaced.
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".. no one (as far as I know) is publicly advocating that they be introduced in Europe .."
Well .. in Italy they (contingency fees) have been recently introduced and can now be agreed upon - in writing - between lawyers and their Clients.
Also, discussion in ongoing on introducing class actions too.
Pietro, Verona, Italy