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Consumer is King? Of class actions and who matters in EU law

The European Commission proposes that consumers should be able to take class actions in future, in the wake of the VW Dieselgate scandal. But it has forgotten other victims of corporate harm.

Image: Keita Kuroki/Flickr, Creative Commons license.

A fire in a textile factory in Pakistan killed over 260 workers on 11 September 2012. The workers were producing directly for the German clothes retailer KiK! (“Kunde ist König!” or Consumer is King!) in a building without fire alarms, emergency exits, or fire extinguishers. Of the roughly four hundred relatives and injured survivors, only four were able to afford to bring claims for compensation against the clothes brand in Germany, financed by German NGOs. These four separate claims all argue the same thing: the brand broke its duty to ensure the factory had fire safety measures in place. In August 2016, German judges accepted jurisdiction over the cases and granted the four individuals legal aid.

Now, at the end of 2017, the roughly 400 remaining survivors and relatives are time-barred from bringing more cases, as they were unable to raise the necessary funds in time.

Collective redress (also known as “class action”) is a procedure allowing many individuals to bring their judicial claims together in a single proceeding against a common defendant. It economises the proceedings for claimants by enabling them to run the one same case for many, at roughly the same financial cost and risk. It economises the functioning of the judiciary, as numerous identical claims are dealt with together, thereby saving the courts time and resources.

Had collective redress been available in Germany, all fire survivors and relatives of the deceased workers could have brought one combined claim against Consumer is King!. However it isn’t, and its availability across EU Member States is a disharmonised patchwork. The Consumer is King! case is just one current example from an EU Member State where the lack of collective address has resulted in the denial of access to justice for hundreds of people having suffered grievous harm.

In October 2017 the European Commission announced plans for EU-wide legislation for collective redress. But unlike previous, non-binding efforts from the Commission that applied to all victims of corporate harm, the current binding proposal is only for consumers. So if people who bought jeans from Consumer is King! somehow suffered harm as a result (say, the jeans didn’t perform the way they were advertised), they could join together and claim their rights against the company as the consumers of its products. But those who made the jeans, or any others suffering harm as a result of the company’s malpractice (hypothetically say, a factory waste spill, or discriminatory hiring practices), are not afforded the right.

Whilst it is very clear the Commission’s proposal comes in response to the VW Dieselgate scandal (where consumers in the US were able to obtain billions in compensation, whilst those in the EU struggle to obtain anything), it is far from clear why others harmed by gross business misconduct are excluded from the proposal.

One study has found that over half of the companies listed on the UK FTSE 100, France’s CAC 40 and the German DAX 30 have been identified in allegations or concerns regarding adverse human rights impacts. Without question, not all these allegations or concerns would meet the requisite standard of proof required by a court in order to order compensation. Nonetheless the numbers are alarming, and testify to the reality that whilst globalisation has granted corporations much freedom of operation, rules for their accountability and the protection of the people they harm lag behind.

Harm caused by large corporate entities seriously affects all manner of people. When a mine barrage breaks and 100,000 square meters of cyanide laced water spills into the Danube river system, huge numbers of people suffer as a result. In 2000, collective redress was not available for the Romanian and Hungarian victims of the worst environmental disaster in Europe since Chernobyl. It isn’t today, and indeed it still wouldn’t be under the Commission’s current proposed legislation.

Similar situations persist in cases of discrimination, labour abuse, violations of anti-trust law as well as data protection. The disharmonised patchwork of collective redress across the EU also has a negative impact on fair competition, as varied corporate exposure to deterrent (injunctive) and corrective (compensatory) action across Member States means some companies are more easily subjected to class-action litigation than others, depending on where they operate within the single market. This is creating an unfair playing field for companies.

Compared to consumer cases, the barriers to justice in corporate environmental harm and human rights cases are typically even more extreme. To begin with, such cases require masses of expert evidence, testimony, and studies in order to prove causation of harm; they involve prolonged legal fees, not to mention the intimidating prospect of financial ruin in the event of loss (the loser-pays principle standard to EU legal systems means a claimant must pay the defendant’s legal costs if the claimant loses). For a corporate defendant on the other hand, the decision to litigate is often hardly even a matter for consideration. 69 of the world’s 100 largest economies are corporations, not nation-states. Such a disempowering set of circumstances often leaves individuals with claims against large corporate entities with a convenient and oft-proclaimed right to access justice and remedy on paper, but not in practice.

The worldwide deficit concerning access to remedy in cases of harm occasioned by corporations is real and significant. It has been acknowledged by the international community and is the subject of one of the tree pillars of the United Nations Guiding Principles on Business & Human Rights (UNGPs), a breakthrough, yet non-binding international instrument agreed by the UN Human Rights Council in 2011 and endorsed by all major European countries as well as the EU itself. The UNGPs confirm that States have a duty to ensure the effective functioning of their judicial systems for victims of business harm. This means addressing the clear and blatant power imbalances between individual claimants and large, well-resourced corporations.

Allowing individual claimants the right to bring their cases together is a concrete and effective way to fulfil this state duty, and gives tangible practical effect to the right to effective remedy for victims. Indeed, it is a plea being made by international and European human rights bodies and public agencies including the Council of Europe, the EU Fundamental Rights Agency, the European Economic and Social Committee as well as a diverse cross-section of civil society and various MEPs.

By crowning the consumer king, the EU commission ignores the legitimate right to remedy for all other people suffering serious harm occasioned by irresponsible corporate conduct. Europe can still seize the opportunity to make equal the right to effective remedy for all those harmed by business malpractice. 

About the author
Christopher Patz is an Australian lawyer and works as policy assistant at the European Coalition for Corporate Justice.

 

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