European Commission Recommendation on common principles for collective actions in EU

The European Commission has today published its long-awaited proposals for the future of collective actions in the EU. The proposals take the form of a non-binding Commission Recommendation together with a Communication explaining the background (click here for links to the documents).

The Recommendation invites Member States to adopt collective redress mechanisms at national level for both injunctive and compensatory relief for breaches of EU law rights which follow a set of basic principles set out in the Recommendation. The Recommendation takes a horizontal approach, rather than proposing different mechanisms for different sectors. Importantly, it recommends an "opt-in" system, with group members having to be identified before a claim is brought. Any exceptions to this principle should be "duly justified by reasons of sound administration of justice".

The proposals follow the Commission’s public consultation on collective redress in February 2011 (see post) and the European Parliament's resolution in response in February 2012 (see post).

The proposals in the Recommendation overlap to a large extent with UK proposals for a new collective action for competition claims, expected to be introduced in the forthcoming Consumer Rights Bill. The UK proposals go further than the Commission Recommendation, in particular in proposing (controversially) the creation of an "opt-out" mechanism for competition claims (see post). 

Other key features of the Recommendation include:

• Where representative actions are brought (as opposed to group actions brought by the claimants themselves) these should be by entities which have been officially designated in advance based on stipulated requirements, or entities which have been certified on an ad hoc basis by national authorities or courts for a particular representative action. 
• There are various proposed safeguards for minimising risks of abusive litigation, including: early verification by the courts that the claim is not manifestly unfounded; the "loser pays" principle to apply in respect of reimbursement of legal costs; the availability of contingency fees only exceptionally and with appropriate regulation; limitations on third party funding (including that the funder cannot seek to influence procedural decisions including on settlement, and that funders cannot base remuneration on the amount of settlement reached/damages awarded unless that arrangement is regulated by a public authority); and the prohibition of punitive damages.
• There should be encouragement of collective alternative dispute resolution before and throughout the litigation, and judicial approval of collective settlements. 

The Recommendation states that Member States should implement the principles set out within two years after its publication. The Commission will monitor and assess the measures taken by Member States and consider whether further action needs to be taken.

At the same time as introducing the Recommendation, the Commission has adopted two other measures aimed at facilitating competition law private actions in the EU, namely a draft Directive on competition law private damages actions and a Communication on quantifying harm in competition law damages actions. Click here for a more detailed briefing on all of these proposals from our Competition disputes team.