U.S. – STYLE CLASS ACTIONS IN EUROPE: A GROWING THREAT?
Linda A. Willett
I.
Introduction
Companies doing business in Europe continue to be concerned about the
possibility that U.S. – style litigation, with its attendant, and by now well documented,
abuses will be imported into the European civil justice systems.1 These concerns arise
from recent changes in certain substantive and procedural laws in various European
Union (EU) member states and the growing influence of consumer organizations in EU
policy making. During the past few years, EU lawmakers have placed a marked
emphasis on increasing consumer protections, particularly with respect to product safety
laws and consumer rights, and on access to justice initiatives. Additionally, the EU has
been encouraging consumer organizations to become even more involved in lawmaking.
Taken together, the changes in substantive and procedural laws and pro-consumer trends
could serve as an impetus to import into EU litigation those U.S. practices that are
referred to as “abusive”. As we will see, those abusive practices are often associated with
class action lawsuits and, perhaps most often, with mass tort litigation.
Until quite recently, unwarranted class action and mass tort lawsuits and abusive
litigation practices have not constituted a real problem for European businesses.
Traditionally, the civil justice systems in most EU countries did not embrace those
1
See, e.g., Growing U.K. Compensation Culture Poses Major Threat to Profitability, Jobs, Survey Reveals,
BUS. INSURANCE, Aug. 1, 2004, available at http://www.insurancejournal.com/news/international/
2004/08/01/44519.htm (noting that “companies see the growing trend [toward a U.S. – style compensation
culture] as creating an unsustainable burden for industry, commerce and public services.”).
aspects of the U.S. system that encouraged excessive litigation and/or outrageous
damages awards. However, certain procedural elements of the class action style lawsuit
now have been adopted or proposed in a number of EU countries and, at the same time,
changes in the substantive laws of certain countries have created a pro-consumer
environment. Those who worry about the importation of U.S. – style litigation practices
into the EU civil justice systems point to this juxtaposition as an opportunity to also
import the more abusive aspects of U.S. – style litigation.
Perhaps the most egregious examples of abusive litigation practices are those seen
in product liability mass tort litigation in the U.S. where hundreds, if not thousands, of
litigants enter the fray claiming that the product(s) of one or more defendants caused
them injury often with little, if any, evidence of actual harm. In 2005, the European
Commission (EC) will once again turn its attention to whether or not the practical effects
of product liability laws in the EU provide enough information to assess a need for
change, i.e. the EC will consider whether or not to revise the European Community
Directive 85/374 on product liability. Therefore, it is appropriate to revisit the concerns
that companies doing business in the EU have regarding the potential for U.S. – style
litigation, and more importantly its abusive practices, and to examine whether or not a
real basis for concern does exist.
This article will begin with a brief description of the U.S. class action mechanism,
with an emphasis on mass tort actions, and how that system has gone awry. A review of
the changes in EU procedural law will serve as a backdrop for the concern that the U.S.
“compensation culture” could become popular in Europe. An overview of the review
process for the General Product Safety Directive will be used to demonstrate why those
2
who continue to worry about the impact on European business of U.S. – style litigation
practices may have a good reason to be concerned.
II.
Class Action Lawsuits in the United States: A Good Idea Gone Bad
The class action was introduced into U.S. procedural law in 1938 when the
Federal Rules of Civil Procedure were adopted. It was “an invention of equity, allowing
certain groups of individuals with common interests to enforce their rights in a single
suit.”2 The class action mechanism was rarely utilized, and had little impact on business,
until 1966 when the Civil Rules Advisory Committee amended Rule 23 (the federal class
action rule). The amendments were drafted during an era in which civil rights were
evolving and “a variety of new causes of action were emerging from common law and
constitutional decisions of courts and statutory changes.”3 Some said that the Rule 23
amendments were intended to “facilitate civil rights and other class actions aimed at
social reform”, however, to the business community “it looked as if the main effect had
been to spur more and bigger damage class actions against them.”4 The pros and cons of
this unique procedural device can be summed up as follows:
[The class action] allows plaintiffs to sue not only for injury done
to themselves but on behalf of other persons similarly situated for
injury done to them. It serves the interests of economy by not
having to try the same issues again and again in separate cases. It
also serves the interests of consistency and finality by avoiding
2
Edward F. Sherman, American Class Actions: Significant Features and Developing Alternatives in
Foreign Legal Systems, 215 F.R.D. 130, 132 (2003). See also, 5 JAMES WM. MOORE ET AL., MOORE’S
FEDERAL PRACTICE ¶ 23.02 (3d ed. 1999) (a class action is a legal procedure for bundling together claims
involving common issues of law and fact into a single proceeding).
3
Sherman, supra note 2, at 133.
4
See Deborah R. Hensler, Revisiting the Monster: New Myths an Realities of Class Action and Other Large
Scale Litigation, 11 DUKE J. COMP & INT’L L. 179, 179-180 (2001) [hereinafter Revisiting the Monster].
See also DEBORAH R. HENSLER ET AL., CLASS ACTION DILEMMAS: PURSUING PUBLIC GOALS FOR PRIVATE
GAIN (RAND Institute for Civil Justice 2000).
3
the possibility of inconsistent outcomes in separate trials of
similar cases and resolving all claims in a single case that is
binding on all class members. On the other hand, if there is
insufficient commonality of interest between the class members,
class treatment can deprive them and the defendant of an
individualized determination of their disputes. It also affects the
bargaining power of the parties enabling plaintiffs to command
more litigation resources by combining their cases and giving
them much greater leverage by compounding the defendant’s risk
of loss.5
A.
Class Actions and Mass Torts
It is important to set forth the relationship between the terms “class action” and
“mass tort action” since certain changes and proposed changes to EU laws appear to
support class action like litigation while those who are worried about misuse of that
procedural vehicle seem to focus on the abuses seen in the U.S. – style mass tort action.
In fact, even in the United States, much of the controversy surrounding class actions
“pertains to the use of class actions to resolve mass torts.”6
Class actions were intended to be “representative litigation”, in which one or
more representatives could bring a civil action on behalf of a large number of similarly
situated people, including absent parties. The resolution of such an action binds all
members of the class. If the action is for monetary damages and certain class members
do not want to be bound by the outcome, they must be afforded an opportunity to opt out
to file individual suits if they choose to do so.7
Mass torts may be class actions, however, a mass tort class action differs from the
traditional representative litigation in that “many class members have obtained individual
5
Sherman, supra note 2, at 130.
Hensler, Revisiting the Monster, supra note 4, at 183.
7
Id. at 182.
6
4
legal representation and filed their own lawsuits prior to class certification.”8 This
amalgam that includes a class representative, individual claims and claims on behalf of
absent parties, i.e. the modern day mass tort class action, grew out of the fact that mass
torts themselves began in an era “when class certification generally was not deemed
appropriate for such litigation.”9
However, in the 1980’s, largely in the context of latent injury product liability
cases, courts began to “expand the types of claims they were willing to certify as class
actions”,10 having been persuaded by plaintiffs’ attorneys that to do otherwise would clog
the judicial system with thousands of personal injury suits.
B.
The Mass Tort Class Action Gone Awry
Critics of the mass tort class action, particularly actions for damages, usually
focus on: the often unwarranted nature of such litigation; the very real value to plaintiffs’
attorneys; the often very low value to claimants and/or society at large; the inefficiency
and burden on the judicial systems; and perhaps, the inability or unwillingness of the
judiciary to control such litigation. One writer summarized these criticisms as follows:
8
1.
Damage class actions are solely the creatures of class action
attorneys’ entrepreneurial incentives.
2.
It is easy to detect non-meritorious class actions and most suits are
non-meritorious.
3.
The benefits of class actions accrue primarily to lawyers who bring
them.
4.
Transaction costs far outweigh benefits to the class and society.
Id. at 183.
Id.
10
Victor Schwartz et al., Federal Courts Should Decide Interstate Class Actions: A Call for Federal
Diversity Jurisdiction Reform, 37 HARV. J. ON LEGIS. 483, 488 (2000).
9
5
5.
Existing rules are not adequate to insure that class actions serve their
public goals.11
Harsher critics, or perhaps those who are more verbally creative, describe the
mass tort class action as “a cash cow for plaintiffs’ attorneys who find state courts willing
to sanction sweetheart settlements that enrich the lawyers, but provide little or no actual
benefit to their clients, the class members.”12 Even the courts have recognized abuses
inherent in certain mass tort class actions. As one judge observed, “[t]he drum beating
that accompanies a well-publicized class action…may well attract excessive numbers of
plaintiffs with weak to fanciful cases.”13 Those courts that have recognized that a
corporate defendant was often forced to settle, regardless of the merit of a case, rather
than risk high loss or even bankruptcy on the outcome of a single case have analogized
such settlements to some form of extortion.14
It is no wonder that our European colleagues look askance at U.S. – style
litigation, particularly mass tort and class action litigation, and have become concerned
that changes in the European socio-economic environment may support importation of
some of the more problematic U.S. – style litigation practices into EU substantive and
procedural law.
11
Hensler, Revisiting the Monster, supra note 4, at 195-196.
Schwartz et al., supra note 10, at 483.
13
In re “Agent Orange” Prod. Liab. Litig., 818 F.2d 145, 165 (2d Cir. 1987), cert. denied,
484 U.S. 1004 (1988).
14
See In re Rhone-Poulenc Rorer, Inc., 51 F.3d. 1293, 1299 (7th Cir. 1995), cert. denied, 516 U.S. 867
(1995) (wherein Judge Posner used the phrase “blackmail settlements”). See also In re General Motors
Corp. Pick-up Truck Fuel Tank Prods. Liab. Litig., 55 F.3d. 768, 784 (3d Cir. 1995), cert denied 516 U.S.
824 (1995) (using the phrase “legalized blackmail”); Castano v. American Tobacco Co., 84 F.3d 734, 746
(5th Cir. 1996) (using “judicial blackmail”).
12
6
III.
European Group Actions: A Risk of U.S. – Style Litigation
Many EU countries already have a class action type of mechanism in the form of
“group litigation” or “representative actions or proceedings.” For example, in England,
and the U.K. as a whole, representative proceedings have been available for more than
two centuries. Representative proceedings permitted “a person to take legal action on
behalf of persons who had ‘common issues’ arising from ‘the same interest’ in a claim
against the same defendant.”15 Historically, representative actions were rarely employed
due to “narrow court interpretations” and inapplicability to matters “where the sole relief
sought damages that would have to be proved individually.”16 However, representative
actions are now more frequently used where declaratory or injunctive relief is sought.
Additionally, representative action rules have evolved to include claims for damages,
even in cases where such claims were made by numerous plaintiffs, making the
mechanism more appealing. The court can award damages in a representative action
where (a) the class members’ loss can be readily ascertained at the time of judgment and
(b) class members have waived their rights to individual receipt of damages and instead
wish their compensation to be paid to a body that represents their interests.17
Representative actions have also been managed through the use of “group orders”
for clusters of cases with claims giving rise to common issues of fact or law.18 Similar to
U.S. class actions, representative proceedings can begin without the court’s permission
and the representative does not need to be appointed or elected by the group. However,
15
Sherman, supra note 2, at 147.
Id. at 148.
17
Id.
18
Id. at 149-150.
16
7
there is less court supervision than in the U.S. and the court does not normally need to
approve settlements.19
Another class action mechanism that is gaining popularity in Europe is “group
litigation”, sometimes referred to as “representative actions or proceedings”. Group
litigation is an outgrowth of the “European Directive on Injunctions for the Protection of
Consumers” [the Directive] issued by the European Parliament & Council in 1998 and
passed into law in 2000.20 The Directive provides that “qualified entities” that are
organizations such as consumer associations or independent public bodies such as
administrative agencies would be allowed to file “group litigation” on behalf of a
specifically defined group of people adversely affected by a defendant’s conduct.21 The
Directive requires “advance determination of the right to serve as a representative rather
than allowing the American or representative action ‘self-selective approach’.”22
Although the Directive’s title seems to focus on “injunctions”, damages may be sought in
some countries in certain situations.23 Salient features of group actions include: (1) the
organization does not necessarily need standing – in other words, the representative does
not have to have “a direct interest in the proceeding”; (2) the organization does not need
to identify individuals thus enabling a consumer group to sue on behalf of unnamed and
unidentifiable consumers so long as it identifies a cause of action; (3) the provisions vary
as to whether or not notice to represented individuals is required; and (4) some of the
19
Id. at 148.
Id. at 144.
21
Id.
22
Id.
23
Id.
20
8
provisions eliminate the “loser pays” rule.24 The Directive is being implemented
differently by various EU countries.25 Representative proceedings and group litigation
continue to evolve in a direction not unlike the U.S.- style class action.
In recent years, additional EU countries have adopted class action rules that may
serve to facilitate class action claims.26 Indeed, European Commission member states
have introduced class action rules as follows: Netherlands (1994); Portugal (1995);
England and Wales (2000); Spain (2001); and Sweden (2002).27 As more countries adopt
national legislation allowing for the recovery of damages in group actions, the EC is
more likely to consider a harmonizing Directive. Some believe that these developments
“are still a far cry from American class actions.”28 However, others believe that
procedural changes permitting expanded representative proceedings and group litigation,
coupled with a decidedly pro-consumer trend, predict a “gathering storm”29 that should
not be ignored by companies doing business in the EU.
A.
Procedural Law Changes
Certain aspects of the U.S. legal system serve to encourage representative and
group actions, e.g. contingency fees, lawyer advertising, high damages awards and the
like. In the past, companies doing business in the EU have relied on the fact that most
24
Laurel J. Harbour, et al., Representative Actions in Europe: Access to Justice?, Class Action Litig. Rep.
(BNA) Vol. 4, No. 12, May 27, 2003, at 474-77.
25
Sherman, supra note 2 at 145.
26
See generally Christopher Hodges, Multi-party Actions: A European Approach, 11 DUKE J. COMP. &
INT’L L. 321 (2001). See also Peggy Hollinger, France Mulls Allowing Class-Action Suits, THE FINANCIAL
TIMES, Jan. 6, 2005, at 7 (noting that “President Jacques Chirac has asked his government to examine how
groups of consumers and their associations could bring collective actions against abusive practices that
have been observed in certain markets.”).
27
Christopher Hodges, European Law Reform, Center for Socio-Legal Studies, University of Oxford,
Wolfson College (April 2004).
28
Sherman, supra note 2, at 150.
29
See Victor E. Schwartz & Leah Lorber, Changes in International Civil Justice Laws: The Gathering
Storm, INTERNATIONAL PRODUCT LIABILITY LAW: A WORLDWIDE DESK REFERENCE 926, 926-28 (2004).
9
European civil justice systems did not embrace these practices and, therefore, believed
that U.S. – style litigation abuses would not be a problem in multi-party actions. However,
as we shall see, the EU systems are changing in a manner that, at a very minimum,
predicts some movement toward closing the gap between differences in the U.S. and EU
legal systems. The EC’s adoption of minimum consumer protection rules has encouraged
cross-border trade and is likely to also encourage multi-party litigation. The EC
Injunctions Directive is structured to allow organizations designated by one country to
pursue consumer actions both domestically and in other EU member states where the
interests the organizations protect are affected. Groups are viewed as more effective than
individuals in resolving cross border disputes. Group actions are likely to encourage
unnecessary litigation since the lack of standing requirement30 coupled with new rules
regarding fee arrangements could create economic incentives for the consumer
organizations that chose to litigate.31
This section will attempt to provide the reader with an understanding of how
certain changes in EU procedural laws are narrowing the gap between past practice in the
EU and U.S. litigation practices, with an emphasis on potential implications for business.
It is not intended to be an exhaustive discussion of the evolution of changes in EU
member states’ procedural law, but rather an overview of the trend.
See Harbour, supra note 24, at 474-75 (discussing the potential elimination of the traditional “standing”
requirement in representative actions and noting that the proposed changes to procedure for representative
actions in the UK “suggested, for example that a consumer group may want to bring suit to show that a
product is potentially harmful prior to the damage occurring”).
31
See generally Sherman, supra note 2, at 131; Schwartz et al., supra note 10, at 492-93; Hodges, supra
note 26, at 339-46 (each discussing the changes in EU procedural law).
30
10
1.
Funding Class Action Lawsuits
The importance of the “contingency fee” in U.S. litigation can be underscored by
the statement that it is “[o]ne of the hallmarks of litigation in the United States”.32 The
contingency or “no win, no pay” fee has been a part of U.S. litigation since at least the
early part of the nineteenth century.33 As a source of potential windfall income for
plaintiffs’ attorneys, the contingency fee is often cited by critics as one of the drivers of
class action litigation.34 There is a perception, both inside and outside the U.S., that the
contingency fee (and particularly the percentage fee) is unique to U.S. litigation.35 That
perception is not correct.
Many EU member states have enacted local rules allowing some form of legal aid
to fund private lawsuits.36 However, variations of the legally accepted contingency fee
also have been available in certain member states for some time. For example, in France
“major Paris law firms are using contingency fees increasingly, and they are now being
permitted to base fees in part on results achieved.”37 Italy, Luxembourg and Portugal
permit firms to charge fees that are based, to some extent, on results.38 In Scotland and
Ireland, the plaintiff pays the lawyer’s “normal fee” unless the case is lost.39 Greece
32
See Herbert M. Kritzer, Seven Dogged Myths Concerning Contingency Fees, 80 WASH. U. L.Q. 739, 739
(2002).
33
See Peter Karsten, Enabling the Poor to Have their Day in Court: The Sanctioning of Contingency Fee
Contracts, a History to 1940, 47 DE PAUL L. REV. 231, 231 (1998).
34
See Kritzer, supra note 32, 744-61 (discussing the pros and cons of the contingency fee).
35
See Herbert M. Kritzer, Fee Arrangements and Fee Shifting: Lessons from the Experience in Ontario, 47
LAW & CONTEMP. PROBS. 125, 130 (1984).
36
Directive 2003/8/EC, OJ L26/41, 31.1.2003 (the “established minimum standard rules for the availability
of legal aid for litigants in cross-border civil and commercial lawsuits, to assure that all persons can ‘assert
their rights in the courts even if their personal financial situation makes it impossible for them to bear the
costs of the proceedings.’ Legal aid would cover all court costs from pre-litigation advice to appeal costs to
costs directly connected with the cross-border dimension of the dispute.”).
37
See Kritzer, supra note 32, at 746.
38
Id. at 747.
39
Id. at 745.
11
permits a U.S. – style contingency fee, but limits that fee to “20% of the amount
recovered.”40
Restrictions on the use of the contingency fee in EU litigation have been
considered as one potential deterrent of the abuse seen in U.S. – style class actions.
However, the European Commission’s interest in increasing access to justice41 has caused
member states to review laws pertaining to the funding of litigation. According to one
commentator, the “UK has largely privatized the funding system by introducing
conditional fees (a no-win-no-fee system with a success fee based on hours worked at a
percentage uplift related to the risk but capped at 100%)”.42 Additionally, the 2003
Directive on Legal Aid43 permits the contingency or conditional fee system as an aid to
achieving effective access to justice. Those who are concerned about widespread
implementation of the U.S. – style contingency fee note that this provision in the Legal
Aid Directive “affords a very wide potential gap, which would enable member states to
introduce an unregulated contingency fee system.”44
2.
Loser Pays Costs Rules
Perhaps the biggest deterrent to unwarranted litigation in the EU has been the
“loser pays rule”, i.e. the party losing or settling a case must pay the majority of the other
party’s legal costs. The loser pays rule has been the normal rule of cost allocation in the
UK, Ireland and many EU member states. However, the normal rule, understandably, did
40
Id. at 747.
See, e.g., the European Commission’s webpage concerning consumers’ “access to justice”, available at
http://europa.eu.int/comm/consumers/redress/acc_just/index_en.htm.
42
Hodges, supra note 27, at 2.
43
Directive 2003/8/EC, OJ L26/41, 31.1.2003 (stating that the member states are to enact national laws by
November 2004).
44
Hodges, supra note 27, at 3.
41
12
not apply when the claimant’s case was funded through legal aid on the basis that a poor
claimant could not sustain the cost of potential loss.45 One writer has noted that the
“effect of this suspension of the normal rule, however, was the widely recognized
phenomenon of plaintiffs’ “legal aid blackmail” of defendants, forcing defendants to
settle claims that were of lesser intrinsic merit than would normally be the case.”46
Elimination of the loser pays rule has been proposed by some member states
and/or instituted in part by others. For example, in Portugal, a partially favorable decision
could eliminate a representative party’s liability for costs and financial circumstances will
be taken into consideration in assessing costs to a losing class.47 While not specifically
addressing costs in representative actions, French legislation does direct the court to
consider the economic situation of the parties in allocating expenses to be paid by the
losing party.48 In setting forth the procedure for representative claims, the UK Lord
Chancellor called for comments on whether or not the loser pays rule should be
eliminated in representative actions against the government or a corporation, calling such
a proposal “in the public interest.”49 The proposal envisioned that “each party would
bear its own costs, or if the action failed, the representative organization would not be
liable for costs”.50 Apparently, there has been little interest in this proposal.
45
See Hodges, supra note 26, at 336 (noting, however, that the loser pays rule would apply if the claimant
were proceeding on a conditional fee basis).
46
Id.
47
Portuguese Act. No. 83/95; Art. 20.
48
Art. 700 NCPC.
49
Lord Chancellor’s Department Consultation Paper: Representative Claims: Proposed New Procedures
(February 2001), ¶37 (hereinafter “LCD Consultation Paper”), noted in Harbour, supra note 24, at 477.
50
Id.
13
3.
Damages
Punitive damages, an important incentive to commence litigation in the U.S. and
in the settlement of class actions, are rare in the EU. However, recent changes in UK
procedural law51 foreshadow the potential availability of punitive damages in almost all
tort cases. No EU member state currently permits punitive damages for personal injury
or product liability claims.
In 1997, the UK Law Commission, an entity established in 1965 to review the law
and recommend reforms, where appropriate, proposed expanding the availability of
punitive damages.52 In rejecting traditional limits on punitive damages, the Law
Commission declared that such damages should be permitted for “any tort or equitable
wrong, as well as for statutory wrongs if an award would be consistent with the policy of
the statute under which the wrong arises.”53 The UK Government rejected the Law
Commission’s recommendation, advising that the issue should be left to the courts. In
2001, the House of Lords supported this recommendation in Kuddus v. Chief Constable
of Leicestershire54 ruling that there was no bar to punitive damages. If the contingency, or
conditional, fee gains greater acceptance then the question of paying for lawyers through
higher damages will inevitably arise.
See Schwartz & Lorber, supra note 29, at 936-37 (noting that “[f]or years in the UK, punitive or
exemplary, damages were not available in negligence and strict product liability cases under the principle
that exemplary damages could not be awarded for any cause of action in which they had not been awarded
before 1964.”).
52
Id. at 937.
53
Id., citing the Law Commission’s comments in the Report on Aggravated, Exemplary and Restitutionary
Damages, 1, 5-6 (1997) (Law Com No. 247).
54
[2002] 2 A.C. 122, 134.
51
14
4.
Lawyer Advertising
In the U.S., advertisements for legal services, particularly with respect to personal
injury claims, have become commonplace. Radio, television, print ads and billboards
asking “have you been injured?” and advising “call 1-800-LAWYERS” abound. Use of
the internet, with easy access to information, has grown exponentially in the last few
years and, so too, has lawyer advertising through the internet. For example,
www.injurylawyer.com advises in its VIOXX ALERT! that VIOXX users may have a
“right to possible compensation”.
Lawyer advertising is still generally prohibited55, or significantly restricted56 in
most EU member states. However, in a few countries restrictions on lawyer advertising
were lifted some time ago. For example, in the 1970’s, advertising restrictions were
removed for the legal profession in the UK. Two decades later, restrictive advertising
rules were removed for the legal profession in Denmark, and in the past few years,
Germany has relaxed certain restrictions on lawyer advertising.57 The European
Commission has proposed removing all prohibitions to commercial communications by
lawyers.
In 2004, the European Commission set forth a proposal for a Directive that would,
in part, prohibit “certain particularly restrictive legal requirements”58 that hampered the
competitively effective development of service activities in the internal market.
See Communication on Competition in Professional Services, COM (2004) 83 final (European Comm’n,
Feb. 9, 2004), at 14 (noting effective advertising prohibition in Greece, Portugal and Ireland (for
barristers)).
56
Id. (noting significant advertising restrictions in Austria, Belgium, France, Ireland (for solicitors), Italy,
Luxembourg, and Spain).
57
Id.
58
Proposal for A Directive on Services in the Internal Market, COM (2004) 2 final (European Comm’n,
Mar. 5, 2004), at 3.
55
15
Specifically, Article 29 of the proposal recommended that “[m]ember [s]tates shall
remove all total prohibitions on commercial communication, by the regulated
professions”59 by 2010. The EC cites “an increasing body of empirical evidence which
highlights the potentially negative effects of some advertising restrictions”60 and suggests
that “advertising restrictions may under certain circumstances increase the fees for
professional services without having a positive effect on the quality of those services.”61
Furthermore, the EC proposal notes that “truthful and objective advertising may actually
help consumers to overcome the asymmetry [of information in professional service
relationships] and to make more informed purchasing decisions.”62
In 2005, the EC plans to release a report on progress achieved in eliminating
restrictions on commercial communication by regulated professions, including lawyers.
According to one commentator, “US - style advertisements for personal injury claims
have become commonplace in Britain within the past 10 years.”63 In fact, national bans
on lawyers’ advertising are already being circumvented. For example, class actions have
been advertised in the Netherlands and Germany by consumer organizations, rather than
lawyers. Given the perceived need to ensure a competitive market for legal services for
Id. at 65. (stating that “[m]ember states shall ensure that commercial communications by the regulated
professions comply with professional rules, in conformity with Community law, which relate, in particular,
to the independence, dignity and integrity of the profession as well as to professional secrecy, in a manner
consonant with the specific nature of each profession.”)
60
Communication on Competition in Professional Services, supra note 55, at 14.
61
Id.
62
Id.
63
Hodges, supra note 27, at 2.
59
16
consumers, prohibitions against lawyer advertising are likely to disappear sooner rather
than later, however, some restrictions as to content may be imposed.64
B.
Substantive Law Changes
As changes to procedural laws continue to evolve in the member states, the
European Commission also continues to focus on potential revisions to certain areas of
substantive law, including: the law on product liability for defective products; reform of
EU contract law; a proposal for a regulation on the law applicable to non-contractual
obligations (Rome II); liability for environmental claims; civil liability of geneticallymodified (GM) food producers; and registration, evaluation, authorization and restriction
of chemicals (REACH).65 This section will focus on how potential changes in the
substantive laws governing product safety could create new opportunities for consumer
lawsuits.
1.
Directive Governing Product Liability
Recent substantive changes in the “Product Liability Directive”,66 in conjunction
with previously discussed procedural law changes may serve to create a “compensation
culture” not unlike the culture found in U.S. – style mass tort litigation. The Directive on
liability for defective products established a strict liability scheme in the EU that was
similar to U.S. strict liability law.67 Defenses that could be asserted under the Directive
64
See, e.g., Charles Fleming, Ireland Curbs 'American Disease', WALL ST. J., Tues. Jan 25, 2005, B1
(noting that in Ireland “[l]aw firms are banned from advertising a promise that plaintiffs don’t incur any
costs if their case isn’t won.” That rule among others, was set forth by a Personal Injury Assessment Board
established to curb abuses, nicknamed “The American disease”, seen in personal injury lawsuits).
65
See The European Commission’s webpages concerning health and consumer issues, available at
http://europa.eu.int/comm/dgs/health_consumer/index_en.htm. See also Schwartz & Lorber, supra note 29,
at 929-31 (discussing the basic elements of the product liability directive).
66
Directive 85/374/EEC OJ L210/29, 25.7.1985 (discussing the approximation of the laws, regulations and
administrative provisions of member states concerning liability for defective products).
67
Schwartz & Lorber, supra note 29, at 929.
17
included the ultimately controversial “development risks” defense that bore some
resemblance to the U.S. “state of the art” defense. Member states were required to enact
local laws, implementing the Directive, by 1988.68 However, most countries missed that
deadline and the Directive was not fully implemented until 1998.69 Inclusion of the
development risks defense was optional since some member states argued that the ability
to assert such a defense would restrict consumer protection.70 Article 21 of the Directive
required the European Commission to review the Directive’s application and report to the
Council of the European Union, initially after ten years and every five years thereafter,
including any recommendation for reform.71
The EC’s first report was issued in 1995. The report concluded that “there was
insufficient experience under the [D]irective” upon which to base any proposals for
reform, largely due to the fact that most member states had not yet fully implemented it.72
In 2001, the EC issued a Green Paper on Liability for Defective Products73 setting forth
the following “options” for reform:
68
•
Modifying the burden of proof to make it easier to establish liability in
certain circumstances;
•
Removing the development risks defense;
•
Extending the 10-year long stop;
Id. at 930. Luxembourg and Finland did not adopt the defense, Spain excluded it from claims and the
remaining member states adopted the defense. Id. at 931.
69
Id. at 929 n. 20.
70
Id. at 931.
71
See John Meltzer, Reform of Product Liability in the EU: New Report Finds General Satisfaction, 71
DEF. COUNSEL J. 42, 42 (2004).
72
See First Report on the Application of Council Directive on the Approximation of Laws, Regulations and
Administrative Provisions of the Member States concerning Liability for Defective Products (85/374/EEC),
COM(95)617, 13.12.1995, based on Christopher Hodges, Report for the Commission of the European
Communities on the Application of Directive 85/374/EEC on Liability for Defective Products, McKenna &
Co., 1994.
73
Green Paper Liability for Defective Products COM (1999) 396 final.
18
•
Introducing class or representative action procedures in respect of
product liability claims;
•
Providing compulsory insurance cover for manufactures.74
Although the EC “made it clear in the 2001 Green Paper that is was committed to
maintaining what it believed was the essential balance in the product liability [D]irective
between the interests of producers and those of consumers”,75 response to the reform
options was mixed. Consumer representatives favored the reform proposals while
industry preferred to maintain status quo.76 In its second report to the Council of the
European Union (2001), the EC reviewed responses to the Green Paper, concluded,
among other things, that “the Green Paper consultation process had failed to produce the
factual information necessary to enable any ‘firm conclusions’ to be drawn on the options
for reform”, and recommended that “follow-up studies should include insights into the
practical operation of product liability systems throughout the EU, including the
[D]irective, as well as into the economic impact of abolishing the development risks
defense.”77
In 2002, the international law firm, Lovells, was selected by the European
Commission to “carry out an extensive study into the functioning of the [D]irective and
other product liability laws operating throughout the EU, and to consider the need for
reform.”78 Specifically, Lovells was asked to:
74
Meltzer, supra note 71, at 43.
Id. (setting forth the principles arguably establishing balance.)
76
Id.
77
Id.
78
Id. at 42.
75
19
•
obtain evidence of the practical operation of product liability systems
throughout the EU, including that of the [D]irective, from persons or
organizations most closely affected by those systems;
•
assess the need for reform of the provisions of the [D]irective; and
•
assess the need for further harmonization of product liability laws in the
EU and, in particular, the possibility of abolishing Article 13 so as to
make the [D]irective the sole and exclusive basis of all product liability
claims.79
The study concluded that the Directive provided an appropriate balance between
the interests of producers and consumers and that the need for substantial reform was not
indicated. However, it recommended that “a central database should be established of
decisions of the courts and tribunals of member states”80 in order to make future
determinations of whether or not a need for reform existed.
On June 4, 2004, the European Commission convened a working group on the
Directive which will meet annually. The consensus of industry representatives was that
the Directive was working efficiently and should not be amended and that changes to the
development risk defense could have a negative impact on innovation and competition.
However, there is a general recognition among stakeholders that access to justice issues
could have an impact on future discussions regarding reform. Some observers believe
that the development risks defense may be eliminated from the Directive in the future in
response to greater concern about consumer rights in Europe.81
Id. at 43 (noting at note 5 that “Article 13 provides: ‘this [D]irective shall not affect any rights which an
injured person may have according to the rules of law of contractual or non-contractual liability or special
liability system existing at the moment when this [D]irective is notified’.”).
80
Id. at 51.
81
Hodges, supra note 27, at 1.
79
20
2.
Other Substantive Law Changes
The Directive on liability for defective products, and member states’ product
liability laws in general, must be viewed in a broader context that includes an array of
other safety and consumer protection laws, including their own evolutions. For example,
the “General Product Safety Directive”82, in effect since 1992, was revised in 2004 and
now includes provisions requiring manufacturers to market safe products, warn about
risks, and establish procedures to identify and respond to product hazards.83 Such
changes are likely to create a broader substantive basis for group and/or representative
actions. The revised Directive also includes provisions requiring manufacturers to
engage in post-sale monitoring and to notify government agencies of product hazards.
Notification information is publicly available and may be used by consumer groups and
plaintiffs’ lawyers to generate lawsuits.
The Proposal for a Regulation concerning the Registration, Evaluation,
Authorization and Restriction of Chemicals (REACH)84 is another example of how
evolving policy may create the basis for lawsuits. Based on the “precautionary
principle”,85 REACH proposes a regulatory framework holding industry responsible for
the testing and risk assessment of chemicals. Highly problematic substances with serious
and irreversible effects on humans and/or the environment would require authorization
and producers or importers would be required to show that risks adequately could be
82
Council Directive 92/59/EEC of June 29, 1992 on General Product Safety, 1992 O.J. (l228) [Directive].
83
Schwartz & Lorber, supra note 29, at 929.
Proposal for a Regulation Concerning the Registration, Authorisation and Restriction of Chemicals
(REACH) COM (2003) 644.
85
“Under the precautionary principle, a systematic approach is to be taken in regulating risks in products
already placed on the market. First, it requires a scientific evaluation of all available information, including
the risks and uncertainties of the product. Second, it requires further research of uncertain or unquantified
risks.” Schwartz & Lorber, supra note 29, at 932.
84
21
controlled or were outweighed by socio-economic benefits of the use. The proposed
legislation would apply to all parties in the chain of distribution and would create a new
duty of care to prevent adverse impacts from the use of their chemicals.
Finally, a proposed Directive on Unfair Commercial Practices86 seeks to fully
harmonize national laws on unfair commercial practices in order to increase consumer
and business confidence in cross-border transactions. In May 2004, the European
Council of Ministers agreed to a six-year phase-in period in which countries can have
stricter rules than in the proposed Directive, and to remove a reference to “country of
origin rules”, currently providing that companies advertising and marketing products in
the EU need only comply with the rules of the member states in which they are based.87
If adopted, the proposed Directive, particularly provisions eliminating country of origin
rules, will force companies to apply twenty-five (25) different sets of rules if they are
doing business throughout the EU. This lack of legal certainty means that companies will
be increasingly vulnerable to litigation.88
IV.
Compensation Culture and Class Actions
Observers of the changes in the EU civil justice system clearly are worried about
what they now refer to as “the US - style compensation culture.”89 In July 2003, The
86
Proposal for a Directive Concerning Unfair Business-to-Consumer Commercial Practices in the Internal
Market COM (2003) 356 final.
87
The European Parliament voted unanimously in favor of an amended text (A6-0027/2005) in their second
reading on February 24, 2005. The text, expected to be rubber stamped by Ministers in June 2005 does not
include a reference to the “country of origin” principle.
88
See Schwartz & Lorber, supra note 29, at 933.
89
In September 2002, Prince Charles announced “I, and countless others, dread the very real and growing
prospect of any American-Style personal injury ‘culture’ becoming more prevalent in this country.” Letter
from Prince Charles to the Lord Chancellor (June 26, 2001), Leaks Of Prince's Letters To Ministers Spiral The Letters - 'We Are Sliding Down A Slope Of Petty-Minded Litigiousness', THE GUARDIAN, September 27,
2002, at 9.
22
Financial Times carried an article noting that “[t]he march of the US-style compensation
culture [in the UK] has so worried the government’s Better Regulation Task Force that it
has launched a study to put an official price on the cost to business.”90 The Better
Regulation Task Force published a report in May 2004, casting doubt on the existence of
a U.S. - style compensation culture in the UK.91 However, a survey conducted by AON,
focusing on the compensation culture of U.K. companies, found that such a culture does
exist and poses a major threat to profitability and jobs.92 Lloyd’s of London has
estimated the “annual cost of litigation to British industry at 10 billion pounds ($18.6
billion) a year and rising at 15% annually.”93
The expansion of “no win, no pay” legal services, lawyer advertising and the
reluctance of insurance companies to defend claims are cited as the top three drivers of
the growth of the compensation culture in Europe.94 Paul Bowden, a partner at
Freshfields Bruckhaus Deringer, notes that Europeans have become more litigious and
that “[c]onsumer associations have become more powerful and willing to push lawsuits,
and there [are] a growing number of small law firms with young, ambitious lawyers who
have learned a lot from the U.S.”95 Others believe that the growing compensation culture
is a result of the “shift towards liberalization and privatization of access to justice”96 and
“a broad political shift in Europe away from the generous welfare state of the late 20th
90
Bob Sherwood, Onward and Upward March of the New Litigation Nation, FINANCIAL TIMES, July 19,
2003, at 16.
91
See Growing U.K. Compensation Culture Poses Major Threat to Profitability, Jobs, Survey Reveals,
supra note 1.
92
Id.
93
Charles Fleming, Europe Learns Litigation Ways, WALL ST. J., February 24, 2004, at A16.
94
See Growing U.K. Compensation Culture Poses Major Threat to Profitability, Jobs, Survey Reveals,
supra note 1.
95
Corinna Budras, Deutsche Telekom Case’s 15,000 Claims Swamp Court, BLOOMBERG NEWS, Nov.23,
2004.
96
Id. (quoting Christopher Hodges, a research fellow at Oxford University).
23
century.”97 Under these circumstances, Europeans are beginning to see litigation as a
self-help remedy.98
The emphasis on access to justice and growth of a compensation culture seem to
be the driving forces behind the push for a class action mechanism in Europe. In an
article published in 2001, Christopher Hodges concluded that “Europe neither needs nor
wishes to import U.S. – style class action litigation, representing huge, avoidable, and
unnecessary cost which distorts the economy by siphoning transactional costs towards
service suppliers who are enabled significantly to influence demand for their services.”99
However, in 2005, that is exactly what is happening. As we have seen, the U.K., Spain,
Sweden, Germany have already adopted or reformed class action rules and, most recently,
the President of France has recommended reformation of the French rules. Additionally,
well known U.S. class action law firms, such as Milberg Weiss and Cohen, Milstein,
Hausfeld & Toll, have established relationships with Class Law and Leigh Day
Associates, consumer oriented class action firms in the U.K.
In fact, Michael Hausfeld is forming an international network of plaintiffs lawyers
and is making plans to file a variety of antitrust, product liability, securities and human
rights lawsuits in several countries. Hausfeld’s UK partner firm, Irwin Mitchell, is
actively seeking potential Vioxx claimants to sue Merck. The goal of this network is “to
export U.S. – style litigation tactics, including contingency fees and class actions,
throughout the world.”100 In a unique twist in strategy, Hausfeld is actually planning to
97
Fleming, supra note 93, at A16.
Id.
99
Hodges, supra note 26, at 346-47.
100
Michael Freedman, Can You Say Tort?, FORBES, Dec. 27, 2004, at 124.
98
24
exploit the current differences between the EU and U.S. legal systems for the potential
benefit of his clients, and his own fees. For example the UK allows “limited discovery
before potential plaintiffs even file a claim”, whereas in the U.S., once a claim is filed,
the courts and procedural rules provide “greater latitude for digging up evidence.”101
Hausfeld could work these differences to “pry open corporate secrets in the U.K. with
pre-filing discovery and follow up with massive document dredging in the U.S.”102 His
network of firms stands ready to share information, drive corporate defendants to “global
resolution” (i.e. corporate blackmail) through settlements and then share in the massive
fees. Of his strategy, Hausfeld has stated “[w]e feel we’re at the frontier.”103
The procedural differences that distinguished European legal systems from the
U.S., and provided some insulation from abusive litigation practices, appear to be eroding
and creating a compensation culture that consumers and their lawyers find attractive. The
European Commission’s increased emphasis on consumer protection generally suggests
that consumer oriented laws will continue to be enacted, creating more opportunity for
substantive claims that could be ripe for group treatment. Additionally, the emphasis on
consumer protection via litigation as opposed to direct regulation and social welfare
programs suggests that the incidence of mass tort litigation will only increase. The trend
toward class action lawsuits, combined with emerging consumer friendly substantive
laws and the availability of U.S. – style practices, e.g. contingency fees and lawyer
advertising, will create a new litigation landscape in Europe over the next few years.
101
Id. at 125.
Id.
103
Id.
102
25
V.
Conclusion
The evidence may be compelling, yet it has taken some time for many U.S.
companies doing business in Europe to realize that they can no longer rely on Europeans
being immune to the “American disease” of the compensation culture. In reality, this is
hardly surprising, as the puzzle is a complex one incorporating the multifaceted nature of
European law and politics where dangers emerge at both national and EU level. This is
combined with subtle changes in substantive and procedural laws and underpinned by a
common move by legislators towards “protecting the consumer”.
All evidence shows that companies doing business in Europe are now beginning
to put the pieces of the puzzle together. This has manifested itself in recent months in a
noticeable mobilization of industries from a wide range of sectors. All of them are
concerned that Europe is stepping onto a dangerous path of U.S.-style litigation that, once
begun, is difficult to leave. Moreover, when the problem needs tackling on many fronts,
companies are increasingly realizing that there is strength in numbers.
Foremost in addressing the issue has been the European Justice Forum (EJF): a
coalition of businesses, individuals and organizations promoting fair and balanced civil
justice laws in the European Union and its member states. EJF members have been
witness to the civil justice system in the U.S. and have seen how it has increasingly been
used to secure excessive damages awards and force “regulation through litigation,” often
under highly questionable circumstances.
EJF is seeking to ensure that the legal environment in Europe encourages
innovation, business and entrepreneurialism, while still protecting consumers. The
26
association closely monitors developments across the EU which have the potential to tip
the legislative balance and is able to draw upon the latest academic research from leading
institutions on civil justice issues including the Centre for Socio-Legal Studies at Oxford
University.
The unique structure of the organization means that companies are able to speak
with one voice, fully understand the latest developments across Europe as well as their
legal implications, and ultimately combat the possibility of Europe following the path of
U.S.-style litigation.
27