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The misuse of abuse: fears of potentially abusive litigation are overriding the reality of abusive companies in Europe

It’s time to look to the future of collective redress in the EU on the basis of the evidence, for victims of corporate abuse in all member states and for all types of harm.

lead lead A Volkswagen car model 'VW Tiguan' next to handcuffs. The photo was taken on 15 October 2015. Sascha Steinach/Press Association. All rights reserved.Dieselgate held up a mirror to the notion of an EU Single Market where the rights of consumers are respected and enforceable, humiliating European consumers and regulators alike on their own continent.

Whilst US VW owners successfully extract billions in compensation with class-actions (and VW management is also put behind bars), in the EU, where the majority of VW consumers actually are, the struggle to obtain even meagre redress for consumers continues (with VW management avoiding jail time as well).

It’s just one example of an EU mass harm situation where victims have been left without effective remedy. When we consider other areas of harm such as environmental (e.g. toxic chemical spills, man-made earthquakes) or discrimination (e.g. firing or mistreatment on grounds of race, religion or gender), the number of people without the means to compel effective remedy from abusive EU-based companies continues to grow.   

Whilst Dieselgate finally sparked legislative movement on collective redress from the European Commission, the proposal remains restricted to consumer harm, contrary to previous recommendations for a general, horizontal scope from the EU Fundamental Rights Agency, the European Parliament and Council of Europe.

Now this limited proposal must survive eleven months of intense lobbying to pass through the Brussels machinery. It is therefore crucial to get the facts and arguments concerning collective redress straight, in order that the proposal survives intact, and to ensure future developments of collective redress in the EU do not continue to be plagued and delayed by fears of “abusive litigation” that harms businesses. 

When uttered in Europe, the term “class-action” has the potential to cause policy-makers to shiver in their boots. It’s a scary word – synonymous with the litigation excesses of wild-west North America where the financial stakes are alarmingly high and collective claims come easy – meaning large, ill-founded and frivolous lawsuits.

This narrative is the result of committed work by groups such as the so-called European Justice Forum (“the only European organisation solely focused on promoting a balanced system of Justice”), whose corporate membership includes Big Tobacco, Big Pharma and Big Chemical. Alongside the Chamber Institute for Law Reform (an affiliate of the US Chamber of Commerce, whose campaign against collective redress is global) they have had impressive successes in conflating the mere existence of class-actions with litigation abuse (the probable reason why Europeans tend to favour the term “collective redress”). 

Their influence includes the watering-down of a 2013 legislative proposal for “horizontal” compensatory collective redress from the European Commission that covered all types of harm (consumer, environmental, labour, discrimination, digital privacy etc.) to make it a non-binding recommendation. Ironically the non-binding nature of the recommendation was probably a good thing for victims of corporate malpractice, because such was the influence of the business lobby on the final drafting of the recommendation text, that it basically reads as a wish-list of restrictions imposed on plaintiffs, styled as “safeguards against abusive litigation” and sold as saving Europe from the abuses to corporations taking place across the Atlantic.

The restrictions were multiple and varied and included a preference for opt-in over opt-out (victims aren’t automatically in a lawsuit when harmed but must sign up); a prohibition on contingency fees (disallowing claimants from funding cases with their potential winnings): limitations on standing (favouring government certified representative bodies over ordinary citizens); a prohibition on punitive damages (designed to punish guilty corporate defendants): a prohibition on third-party litigation funding (helpful for victims that cannot get legal aid or otherwise fund their cases); and an insistence on the loser pays principle (meaning the losing party pays all the legal fees of the winning side).  

Setting aside the question of the true extent of the abusive litigation phenomenon in the US – and to what extent it is a story perpetuated by Hollywood-produced legal drama and scandal-hungry tabloids – the somewhat hysterical narrative completely ignores the key difference between US and European legal systems. That is the pre-existing loser-pays principle – a long-time staple of the European legal tradition that requires the losing party to cover not only its own costs, but also those of the winning party.

Under the loser-pays principle, absent in the US, no sensible plaintiff or lawyer would bring a big and costly case that has a limited chance of winning, ensuring frivolous claims become effectively dis-incentivised. That is, unless the plaintiff is a powerful corporation whose objective isn’t actually winning a case, but rather draining the time and resources of a weaker, critical plaintiff in a SLAPP suit.   

In January 2018 the Commission reviewed the impact of the 2013 collective redress recommendation, basically admitting that it was a flop. In over four years just three Member States had enacted new collective redress legislation. The study (the most comprehensive empirical investigation into collective redress in the EU to-date) found one third of Member States still without any form of collective redress at all; and, where it is available it is typically limited to injunctions not enabling compensation for victims; furthermore its availability is often restricted to just a certain sector (for financial investors in the case of Germany, for instance).

Interesting is that more than three quarters of the study respondents (which included judges, plaintiffs, defendants and their lawyers, as well as academics) did not report any instances of abusive litigation in the EU, and the 14 respondents who did refer to the risk of abusive litigation pointed to potential risks rather than actual instances.

Yet even more interesting is that many Member States with collective redress actually disregarded the Commission recommendation “safeguards to abusive litigation” (by for example permitting opt-out, contingency fees and third-party funding for plaintiffs) preferring instead a design that would enhance the ability of victims to enforce their rights vis-à-vis well-resourced corporate defendants.

The common result in those countries (such as Portugal, Sweden, Denmark, the Netherlands): enhanced access to justice for victims and not one single cited instance of abusive litigation against companies. By way of comparison, corporations in the EU often bring vexatious, abusive lawsuits against NGOs and journalists who report on their malpractice in the public interest, wasting the precious time and resources of said organisations, as well as those of the EU courts (leading to calls for legislation).

Finally, numerous respondents to the study also explained that the potential of collective actions to generate abusive litigation is rather limited in Europe, due to the aforementioned fundamental differences, meaning the situation is in its whole incomparable to the US. One respondent summarised that, “there is more of a risk of inadequate collective redress mechanisms and a lack of litigation than a risk of abusive litigation.”

 

In comparison to the United States, where litigation procedure may well have developed in a manner too encouraging for claimants and unfavourable for business, in Europe the problem is exactly the opposite. The reality in Europe is that it is exceedingly difficult, commonly impossible, for victims to bring a collective redress claim for mass harm situations and often go without remedy.

VW is just the most recent example, there are, and will continue to be, many others involving different forms of harm other than consumer, such as environmental. Whilst homeowners in the Netherlands are able to seek compensation through collective redress from Shell and Exxon mobile for shale gas drilling (the cause of over 1000 man-made earthquakes damaging over 50,000 properties since the 1990s) residents in Romania and Ireland, where such companies also reap profits from the use of the destructive technology, would not be able to, because compensatory collective redress is not available (and will not be under the current Commission’s consumer proposal). In the EU Single Market access to effective remedy for victims of corporate harm is a lottery.  

So, on the one hand are abusive companies who cannot be compelled to remedy, and on the other is abusive litigation. What European policy makers need to realise and remember is that presently Europe has an actual problem with the former and only a hypothetical problem with the latter. Sadly, this important point will struggle for oxygen in the face of intense lobbying from powerful corporations and their lobby groups.

The so-called European Justice Forum and U.S Chamber institute for Law Reform have been very effective in making the case against allowing victims to efficiently join their cases together in litigation (which would economise judicial procedure in the process), and have been promoting instead “Alternative Dispute Resolution”. The contradiction in their position is, however, that Alternative Dispute Resolution is by definition meant as a practical alternative to effective litigation. Alternative Dispute Resolution did not begin as a parallel system of justice to the courts; it emerged to complement effective litigation procedures.

One cannot have alternative dispute resolution unless the possibility of effective litigation concurrently exists; otherwise this is just non-judicial “dispute resolution”. Naturally it is not in the interests of either party to a dispute to spend time, money and resources going through the courts. Yet without the possibility of going to court to effectively assert one’s legal right to a proper remedy (a fundamental democratic right in and of itself), there is no real or meaningful impetus for corporations to even arrive, let alone properly negotiate, at the alternative dispute resolution table. Once again, VW is just the most recent example of that fact.  

It’s time to look to the future of collective redress in the EU on the basis of the evidence. Victims of corporate abuse – in all member states and for all types of harm – need enhanced collective redress in order to be able to obtain effective remedy and compensation. This concerns society as a whole, whereas in the absence of fines from government agencies, abusive corporations will continue to retain their ill-gotten profits, further emboldening and empowering them; encouraged and undeterred. The victims of corporate abuse must be helped to gain justice and remedy, instead of being pre-emptively blamed for litigation abuse against big corporations.


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