Product Liability 2009 - Arnold & Porter LLP

Arnold & Porter (UK) LLP Recent Developments in European Product Liability
the Commission acknowledged in its Third Report, many of the
disparities in the application of the Directive reflect the varying legal
traditions and procedural rules in different Member States. In
November 2008 the European Commission published a Green Paper
on Consumer Collective Redress (COM (2008) 794 final) which
sought views on how existing methods of redress in respect of
breaches of consumer law could be improved. The Green Paper was
developed in the light of a series of studies which have reviewed the
effectiveness and efficiency of existing EU collective redress
mechanisms, the availability of alternative means of consumer redress
(other than court proceedings), and have looked specifically at the
problems faced by consumers in obtaining collective redress for
infringements of consumer protection legislation.
These reports found that only 13 Member States (Austria, Bulgaria,
Denmark, Finland, France, Germany, Greece, Italy, the Netherlands,
Portugal, Spain, Sweden and the UK) have collective redress schemes,
and that there was considerable divergence in the way those schemes
operated and were regulated. Existing collective redress mechanisms
had been applied in relatively few cases and the levels of
compensation provided to consumers was low. The reports concluded
that the efficiency and effectiveness of existing mechanisms could be
improved, that they may not provide adequate redress where a group
of consumers pursue very low value claims, and the absence of any
collective redress mechanism in some countries may leave consumers
with no adequate means of obtaining compensation. In the light of
these studies the Commission’s Green Paper concludes that because of
weaknesses in the current EU framework “a significant proportion of
consumers who have suffered damage do not obtain redress”. It
sought views on 4 possible options (which could be combined or
pursued independently) to address this problem:
1 No action - taking no immediate action while monitoring the
impact of the national and EU systems that are already in
place or are about to be implemented (such as the Mediation
Directive, which must be implemented by 2011, and the
Small Claims Regulation which came into force at the
beginning of 2009 and applies to cross-border disputes with
a value of €2,000 or less).
2 Co-operation between Member States - this would involve
setting up a co-operation scheme which would extend the
protection of existing national collective redress systems to
consumers from other Member States, and recommend that
countries which do not have such a scheme should establish
one. The Green Paper concludes that there would, therefore,
need to be a cost sharing mechanism as Member States may
be reluctant to finance a mechanism for proceedings by noncitizens
in circumstances where no equivalent mechanism
exists in the citizen’s own country. Issues relating to
jurisdiction and choice of law would also arise.
3 Mix of policy instruments - this option could include a
mixture of binding and non-binding measures such as:
promoting collective mediation or arbitration; raising
consumers’ awareness of existing measures; extending
existing small claims procedures to allow mass small claims
to be brought; extending the Consumer Protection
Cooperation Regulation, for example to include a power to
compensate consumers that have been harmed where there
has been an intra-Community infringement, or by providing
a power to skim-off the profit made by traders who have
committed such an infringement; or improving consumer
complaint handling systems.
4 Judicial collective redress procedure - introducing a binding
or non-binding EU measure that would ensure that a judicial
collective redress procedure exists in all Member States. The
Green Paper makes clear that the aim of such a mechanism
would be to “facilitate meritorious claims and benefit
consumers”, while discouraging a “litigation industry”. In
its “Questions and Answers” document which accompanies
ICLG TO: PRODUCT LIABILITY 2009
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the Green Paper the Commission makes clear that the
introduction of a “US style class action” is not what is
envisaged. It identifies a “toxic cocktail” of measures which
in combination should not be introduced including
contingency fees, punitive damages, extensive pre-trial
discovery and opt-out redress mechanisms.
The Green Paper highlights a number of issues that would need to
be considered if this option were to be pursued, including how the
procedure would be financed, how unmeritorious claims could be
prevented and whether the procedure should be ‘opt-in’ (consumers
must commence an action) or ‘opt-out’ (consumers are treated as
parties to a court action unless they specifically opt-out). Although
the Green Paper does not say expressly that such a measure would
harmonise the current systems in all Member States, the “Questions
and Answers” states that such a procedure would introduce “one EU
wide system for the Single Market”.
The Green Paper’s consultation period has now expired, and the
Commission is considering the responses received. The Green
Paper acknowledges that “there is no easy answer to the problem”
of providing EU consumers with adequate redress and concludes
that all current redress systems have strengths and weaknesses, and
that no single mechanism is ideal for all types of claims. In view of
the difficulties inherent in pursuing each of the proposed options it
is unclear what, if any, measures will ultimately be introduced.
Collective Redress Benchmarks
The Commission has also consulted on a set of 10 benchmarks
which are intended to set the standard for collective redress systems
throughout the EU. Once the benchmarks have been finalised, the
Commission intends to evaluate whether EU Member States are
meeting the benchmarks and, if not, it will consider “what EU
action would best meet the needs of European consumers”. The
benchmarks may, therefore, provide the platform for possible
reform in this area. They are:
“1. The mechanism should enable consumers to obtain
satisfactory redress in cases which they could not otherwise
adequately pursue on an individual basis.
2. It should be possible to finance the actions in a way that
allows either the consumers themselves to proceed with a
collective action, or to be effectively represented by a third
party. Plaintiffs’ costs for bringing an action should not be
disproportionate to the amount in dispute.
3. The costs of proceedings for defendants should not be
disproportionate to the amount in dispute. On the one hand,
this would ensure that defendants will not be unreasonably
burdened. On the other hand, defendants should not for
instance artificially and unreasonably increase their legal
costs. Consumers would therefore not be deterred from
bringing an action in Member States which apply the “loserpays”
principle.
4. The compensation to be provided by traders/service
providers against whom actions have been successfully
brought should be at least equal to the harm caused by the
incriminated conduct, but should not be excessive as for
instance to amount to punitive damages.
5. One outcome should be the reduction of future harm to all
consumers. Therefore a preventative effect for potential
future wrongful conduct by traders or service providers
concerned is desirable - for instance by skimming off the
profit gained from the incriminated conduct.
6. The introduction of unmeritorious claims should be
discouraged.
7. Sufficient opportunity for adequate out-of-court settlement
should be foreseen.
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