Lost in consultation or Entering a new debate

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1 Lost in consultation or Entering a new debate Opinion expressed on the consultation paper Towards a Coherent European Approach to Collective Redress 1 At the public hearing on the consultation paper on April 5 th 2011 Ms. Goyens gave her speech the title Consumer collective redress: Lost in consultation 2. Indeed, one gets the impression that the current consultation is just that: another consultation, not necessarily leading to any action at all. In the light of that impression, which was intensified during the public hearing, and the rather uncertain outcome of the current consultation will it lead to just another consultation? only few comments are made. They are based on earlier work of the author. All thoughts expressed are the personal opinion of the author. I. Introduction 1. No redress without substantive rights The consultation paper starts with the sentence Rights which cannot be enforced in practice are worthless 3. This sentence is as simple as it is true. Therefore it is interesting to note that enforcement has not been in the focus of the EU for a rather long time, even though the right to redress was already mentioned in the first program of consumer law in In addition, it has to be pointed out that some EU legislative acts aimed at the protection of individuals are not necessarily underpinned with individual rights at all. This can e.g. be the case if the Directive on Unfair commercial practices (UCPD) is violated. 5 Collective redress, however, can only be of importance if individuals do have an individual right in the first place. Consequently, when 1 Commission Staff Working Document Public Consultation: Towards a Coherent European Approach to Collective Redress, SEC(2011) 173 final, 4 February 2011 (in the following: the consultation paper). The author would like to thank Carmen Appenzeller for comments on an earlier draft and for help with editing this contribution. 2 The slides accompanying the speech are available at: ntation_goyens_en.ppt. 3 Consultation paper 1.1, par The Council Resolution of 14 April 1975 on a preliminary programme of the European Economic Community for a consumer protection and information policy, OJ of 25 April 1975, C 92/1, p This self-limitation cannot entirely explained by the principle of party autonomy. 5 Cf. Article 11 of the UCPD, Directive 2005/29/EC of the European Parliament and of the Council of 11 May 2005 concerning unfair business-to consumer commercial practices in the internal market and amending Council Directive 84/450/EEC, Directives 97/7/EC, 98/27/EC and 2002/65/EC of the European Parliament and of the Council and Regulation (EC) No 2006/2004 of the European Parliament and of the Council. 1

2 drafting new legislation it should be kept in mind that the individuals protected under such law shall also have substantive rights. 2. Added value of the introduction of new mechanisms of collective redress for the enforcement of EU law? (Q 1) In order to answer this question it is necessary to define collective redress. The consultation paper contains a very broad concept of collective redress, including a variety of forms, including compensatory as well as injunctive relief. The consultation paper (Q 1) asks for the added value of law enforcement. In the public hearing Mr. Chauvin 6 and others expressed their doubts as to whether collective redress should contribute to law enforcement as in their view, collective redress shall only ensure compensation while law enforcement shall be the exclusive competence of public entities, who unlike individuals do not act in their own interest but in the interest of the public. The author does not believe that such a distinction is possible: One has to admit that collective redress shall primarily ensure that victims have access to justice to get compensated for the damage suffered. 7 However, an effective system of collective redress will also create a deterrence effect and thereby help to enforce the law. On the other hand, effective enforcement by public bodies will not indirectly compensate victims but the deterrence effect will prevent future violations of the law and consequently also protect individuals. Deterrence, in addition, not only protects individuals, who would otherwise be future victims, but also enterprises that obey the law and would suffer competition disadvantages compared to businesses violating the law. Therefore the author does believe that collective redress can be a helpful tool and will be of added value for the European legal system, 8 enabling individuals to claim compensation where they would not do so without such means, due to the often described rational disinterest. However, the author does not think that collective redress is best suited for all kind of legal issues. There are issues which might be better solved by public or private organisations: 6 Cf. ppt-presentation, available at: ntation_chauvin_en.ppt. 7 Damage in this context has a broad meaning, including e.g. the damage resulting from unwanted contracts a customer was tricked in. 8 The value for individual MS will depend on whether the respective MS already has an efficient means of redress or not. 2

3 For example, where the individual damage suffered is so small (around 100 Euro or below) that individuals will not join a group action, it seems better that private or public organisations have the power to deduct the ill-gotten gain from enterprises. 9 Neither is collective redress an adequate means with regard to rouge traders. Such cases shall rather be dealt with by criminal law. 3. Relation between collective redress and public bodies (Q 2) Should the EU strengthen the role of national public bodies and/or private representative organisations in the enforcement of EU law (Q 3)? In order to answer this question it would again be important to have precise definitions. What are public and private bodies? It seems that in some MS private bodies acting on behalf of e.g. consumers are to some extent funded by public resources (for example in Austria, the Verein für Konsumentenschutz is partly funded by the federal ministry for labour, social affairs and consumer protection; the same is true for the Federation of German Consumer Organisations). Generally speaking, as noted above, the author believes in collective redress as an important and effective legal tool but the author does not believe that it can substitute the role public and private bodies are already playing today. Furthermore, the relation between collective redress and public and private bodies should be that of co-operation (for the role of representative entities cf. also below II. 2.) 4. Injunctions or compensatory redress at EU level? (Q 5) Injunctions can only have effects for the future. But neither do they provide for compensation of victims nor do they prevent businesses from keeping the profit resulting from violations of the law. Injunctions and extending the scope of the Injunctions Directive 10 can therefore not be regarded as sufficient. The main focus of collective redress has to be compensation as this is, in the author s view, the reason why means of collective redress shall be introduced in the first place. 11 It also has to be kept in mind that injunctions rather protect the collective and not the individual interest. In the author s view, however, collective redress rather serves individual interests which are only grouped together to ensure effective enforcement. 9 Cf. 10 of the German act against unfair competition law. This provision, however, should not be used as a model as it requires intention and organisations successfully applying this provision have to deduct any profit to the federal budget. 10 Directive 98/27/EC of the European Parliament and of the Council of 19 May 1998 on injunctions for the protection of consumers' interests. 11 In addition, collective redress shall contribute to a reduction of court costs. 3

4 5. Personal and material scope (Q 11, 33, 34) The author advocates for a broad personal and material scope: a) Personal scope As the consultation paper notes, the views of stakeholders on collective redress are rather clear: Consumer organisations are in favour of it, businesses and their representatives are against it. This gridlocked view is surprising: at least SMEs should have a strong interest in the introduction of means of collective redress as their position in relation to big enterprises often resembles the position of consumers. Especially in antitrust law it will be important to ensure that any means of collective redress also encompasses SMEs. b) Material scope: Shall a new means of compensatory collective redress only encompass certain sectors or certain fields of law? It is a welcome step in the right direction that the consultation paper involves the work of three director generals as collective redress (or the lack thereof) plays an important role for consumer as well competition law. Therefore it makes sense that at least those two fields are jointly dealt with in the consultation paper. In any case the collective redress mechanism should also deal with a future European contract law, may it be adopted as binding law or as optional instrument. For these fields of law competition law, consumer law, and general contract law it seems favourable to have one general instrument of law. This said it might be necessary to have after a general part, containing general principles, applicable to all fields of law special rules for certain sectors of the areas of law covered. As for other fields of law where a need for collective redress has been indentified too, e.g. capital market law or labour law, it must remain to be seen if they could also be governed by the general instrument (with certain additional specific provisions) or if they shall be dealt with in a specific instrument. II. Specific questions 1. Information of victims (Q 13) The consultation paper raises the question how victims can best be informed about the possibilities to bring a collective claim or to join an existing law suit. It seems that modern media coverage can be helpful in this regard. It is likely that websites reporting on cases and pending law suits, which are advertised via existing information channels like facebook, twitter or websites of national news services may reach at least a huge part of the younger generation. In addition, all pending 4

5 cases should be accessible by websites provided by the ministry of justice of each MS. Spreading information over the internet has the advantage of not being stopped by borders. However, while this may be a sufficient information outreach in ten years time from now, as for today it seems also necessary that court proceedings are advertised by the ministry of justice of each MS in newspapers which have a nationwide distribution as well. While internet and newspapers will be the means to raise public attention for concrete proceedings, it is also important to raise public awareness for the existence of rights and their enforcement in the first place. It might be one of the reasons that the small claims procedure regulation 12 was not as successful as had been hoped that hardly any individual knows about it. Customer education shall already start in elementary school in all MS and should help to raise more active consumers within the EU. 2. Representation of victims (Q 14) and Standing (Q 22) Both questions are strongly linked: Only if the second question regarding standing is answered one can, in a second step, consider how those entities can cooperate in cross-border cases. It also seems that the consultation paper mixes representative actions and group-actions, due to the broad concept of collective redress used. These two actions, however, will suit different fact patterns and shall therefore be carefully distinguished. 13 In the author s view representative actions are required where individual damages are so low that individuals would not bother to join a group action (cf. already above I. 2.). In such cases it seems important that representative entities can step in to ensure that the ill-gotten gain will not remain with the enterprise. 14 These representative actions would rather serve the collective interest of costumers than the individuals interests. In contrast, if the individual damage suffered exceeds a certain amount, activity of customers can be expected and group actions seem to be the appropriate means. The opening of group action proceedings and their administration seems, however, to require the involvement of a representative acting on behalf of the group. It is unlikely that one of the individuals involved can manage that role sufficiently. Representative bodies seem to be much better suited for that role. As such a role requires funding, it seems appropriate that representative bodies can keep the deducted profit from successful representative actions and use it therefore. 12 Regulation (EC) No. 861/2007 of the European Parliament and of the Council of 11 July 2007 establishing a European small claims procedure. It is not applicable in Denmark. 13 Cf. e.g. Commission Staff Working Paper accompanying the White Paper on Damages actions for breach of the EC antitrust rules, SEC(2008) 404, , p. 18, par It has been said that the deduction of the profit is not required if the company is fined. However, the sum to be paid as fines may be lower than the profit and in addition serves a different purpose. It also should be considered that businesses fined and / or deprived of any profit have violated the law in the first place. 5

6 To prevent any abuse of the power to bring an action it has to be ensured that representative entities pass certain standards. However, this is a task which has to be mastered by MS already with regard to the Injunction Directive and seems to be feasible. As with regard to the cooperation needed in cross-border transactions, it seems likely that representative bodies can rely on the networks already existing today. 3. ADR (Q 15, 16, 17) The consultation paper as well as many of the contributions made at the public hearing stress the importance of ADR, which is said to be less costly and faster than court proceedings. However, ADR will only work as noted by the consultation paper and many statements before and during the public hearing with an effective judicial system in place. Otherwise, businesses do not have an incentive to participate in ADR and obey the outcome of such proceedings. An example for that statement can be seen in travel law where many airlines refrain from the ADR by the Conciliation Body for Long-Distance Travel, the German body in charge of out of court settlements with regard to the Air Passengers Rights regulation. For ADR to work it seems also important to ensure that the process is overseen by an unbiased third party and that consequently the outcome of the ADR can be subject to a fairness control by a court. That seems to be even more important if the ADR is funded by businesses themselves and can therefore be regarded as part of self-regulation (cf. in this regard Article 10(2) of the UCPD, which states that enforcement by self-regulation cannot substitute judicial control). As a marginal note, one has to ask why the public consultation for a proposal for an ADR scheme on a European level has not been formally linked to the consultation process for collective redress. In the author s view any further action should also take into account the outcome of the consultation on ADR. III. Final Remarks The EC should use the comments received to enter indeed in a new debate 15 : It should stop having consultations about general questions as it seems unlikely to find the hoped for common principles as the opinions of the involved stakeholders are too different, but shall come forward with a draft for a concrete means of collective redress and open the debate on that

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