Cross-Border Class Actions : The European Way 9783866539679, 9783866532311

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| Cross-Border Class Actions

© sellier european law publishers www.selllier.de

© sellier european law publishers www.selllier.de

| Cross-Border Class Actions The European Way

edited by

Arnaud Nuyts Nikitas E. Hatzimihail

s|e| l |p sellier european law publishers

© sellier european law publishers www.selllier.de

Published with the support of the European Commission

ISBN (print) 978-3-86653-231-1 ISBN (eBook) 978-3-86653-967-9

The Deutsche Nationalbibliothek lists this publication in the Deutsche Nationalbibliografie; detailed bibliographic data are available on the Internet at http://dnb.dnb.de.

© 2014 by sellier european law publishers GmbH, Munich All rights reserved. No part of this publication may be reproduced, translated, stored in a retrieval system or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior permission of the publisher. Production: Karina Hack, Munich. Printing and binding: AZ Druck und Datentechnik GmbH, Kempten. Printed on acid-free, non-ageing paper. Printed in Germany.

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Foreword The rise in multi-party litigation and claims for collective redress is challenging the traditional mechanisms of civil litigation in Europe and worldwide. The recent recast of the Brussels I Regulation – an instrument designed primarily for individual litigation – has provided the impetus for an examination as to whether the legislative instruments of EU private international law – and the institutional mechanisms of judicial cooperation – can effectively and efficiently address the challenges that collective litigation poses for European civil justice. Can the Brussels I jurisdictional system be used to handle collective redress litigation? Should entirely new rules of private international law be designed? What should be the territorial reach of collective redress mecanisms within and outside the EU? Should one law or multiple laws apply? What is the role of arbitration to settle collective claims? Should the EU adopt different rules to deal with cross-border redress in specific fields, such as competition law, financial regulation and consumer protection? These questions, amongst others, are examined in this book. Taken together, the papers in this volume offer a comprehensive effort to cover the various issues pertaining to European judicial cooperation in collective redress litigation. The division in three parts corresponds to the emphasis in the respective papers: the papers by Hess, Nuyts, Fentiman and Michaels discuss the conflicts aspects of collective redress in general; the papers by Athanasiou, Gorywoda, Karayanni and Radicati renew the policy discussion on collective redress and the mechanics of class actions; the papers by Hellner, Posnow, Gonzalez / Anovero, Kapetanaki and Corneloup present case studies in the most characteristic fields involving EU market regulation, i.e. competition, consumer and securities law. They are preceded by an introductory concept paper discussing market regulation and the policies underlying EU private international law. This is the culmination of a two-year international research project coordinated by the Unit for Private International Law of the University of Brussels (Université Libre de Bruxelles) and the Laboratory for Private International Law, Commercial Law and Comparative Legal History of the University of Cyprus, led respectively by Professor Arnaud Nuyts (the project’s director) and Professor Nikitas Hatzimihail (the project’s co-director), with the participation of a group of experts coming from other leading universities in Europe and in the United States. v © sellier european law publishers www.selllier.de

Foreword

The project was funded by the European Commission. The first phase of the project involved background research by Lukasz Gorywoda, research fellow at the University of Brussels and led to a series of background papers, the identification of issues that would benefit the most from further research and the assignment of paper topics among the group’s experts. An initial meeting of the group took place in Cyprus in late September 2011 and was accompanied by a public workshop aimed at acquainting the local audience with these themes. The project culminated in an international conference held in Brussels on 27 April 2012, where the experts presented communications based on the papers contained in this volume. In the published version of some of these contributions, we have sought to take account of developments up to the June 2013 Commission Communication on collective redress and the Directive Proposal on damages for competition violations. Our academic collaborators in this project have included Richard Fentiman (Cambridge), Burkard Hess (Heidelberg), Horatia Muir Watt (Sciences Po Paris), Alegria Borras, Joaquim Forner, Cristina Gonzalez (Barcelona), Anna Gardella, Luca Radicati di Brozolo (Catholic University of Milan), Louise Ellen Teitz (Hague Conference on Private International Law), Michael Karayanni (Hebrew University, Jerusalem), Ralf Michaels (Duke), Lia Athanassiou (Athens), Aurelia Colombi-Ciacchi (Groningen), Maciej Szpunar (Silesia-Katowice), but also Ioannis Voudouris (Cyprus), Lukasz Gorywoda, Natalia Kapetanaki, Malgorzata Posnow-Wurm (Brussels). We wish to acknowledge ECtHR Judge André Potocki, ECJ Judge George Arestis, Alexander Layton QC, Dean Andrée Puttemans and Salla Saastamoinen for their own contributions to this project. The administrative help of Fleur Godefroid was vital to the successful conclusion of the project, as was the moral support and practical advice of Carole Moal-Nuyts and Maria-Tsampika Lampitsi. The research project was financed through the European Commission’s Framework Program for Judicial Cooperation in Civil Matters. The general objective of this program is to promote judicial cooperation in civil matters, aiming in particular at improving access to justice, promoting mutual recognition of judicial decisions, advancing the necessary harmonization of legislation, and eliminating obstacles created by the disparities in civil law and procedure. Arnaud Nuyts & Nikitas Hatzimihail Editors

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List of Authors Beatriz Añoveros Terradas Associate Professor of Law, ESADE Law School, University Ramón LLull Lia Athanassiou Ph.D. (Paris I), Associate Professor of Commercial Law, Faculty of Law, National University of Athens, Attorney at Law, Sabine Corneloup Professor of Law, University of Burgundy, France Richard Fentiman Professor of Private International Law, University of Cambridge Cristina González Beilfuss Professor of Law, University of Barcelona Lukasz Gorywoda Ph.D. (European University Institute), LL.M. ‘13 (Columbia Law School), former Researcher at the Unit for Private International Law of the Université Libre de Bruxelles Nikitas E. Hatzimihail Associate Professor of Commercial Law, Private International Law and Comparative Legal History, University of Cyprus Michael Hellner Professor of Private International Law, Stockholm University Burkhard Hess Professor of Law, Director of the Max Planck Institute Luxembourg for International, European and Regulatory Procedural Law Natalia A. Kapetanaki Lecturer, PhD Candidate, Centre for Private Law, Université Libre de Bruxelles

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Michael M. Karayanni Edward S. Silver Professor of Civil Procedure, Faculty of Law, Hebrew University of Jerusalem Ralf Michaels Arthur Larson Professor of Law, Duke University Arnaud Nuyts Professor of Law, Université Libre de Bruxelles; Partner, Liedekerke Wolters Waelbroeck Kirkpatrick, Brussels Małgorzata Posnow-Wurm Administrator, European Commission; former Researcher at the Unit for Private International Law of the Université Libre de Bruxelles Luca G. Radicati di Brozolo Professor of Private International Law, Catholic University of Milan; Member of the Bar of Milano, Arbitration Practice ARBIT

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Short Table of Contents Foreword

v

List of Authors

vii

Introduction: Market Regulation, Judicial Cooperation and Collective Redress Lukasz Gorywoda, Nikitas Hatzimihail and Arnaud Nuyts

1

A. The Private International Law of Collective Redress Collective Redress and the Jurisdictional Model of the Brussels I Regulation Burkhard Hess

59

The Consolidation of Collective Claims Under Brussels I Arnaud Nuyts

69

Recognition, Enforcement and Collective Judgments Richard Fentiman

85

European Class Actions and Applicable Law Ralf Michaels

111

B. New Perspectives on Collective Redress Collective Redress and Competition Policy Lia Athanassiou The Emerging EU Legal Regime for Collective Redress: Institutional Dimension and Its Main Features Lukasz Gorywoda

145

173

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The Class Action Experience in Israel and the Value of Having a Representative with a Personal Claim Michael M. Karayanni Class Arbitration in Europe? Luca G. Radicati di Brozolo

189

209

C. Case Studies on Cross-Border Collective Redress Private International Law and Collective Redress – The case of Antitrust damage claims Michael Hellner

223

Compensatory Consumer Collective Redress and the Brussels I Regulation (Recast) Cristina González Beilfuss and Beatriz Añoveros Terradas

241

Rethinking Collective Redress, Consumer Protection and Brussels I Regulation Małgorzata Posnow-Wurm

259

Transnational Securities Fraud Class Actions: Looking Towards Europe? Natalia A. Kapetanaki

277

Rome II and the Law of Financial Markets: The Case of Damage Caused by the Breach of Disclosure Sabine Corneloup

291

Collective Redress and Global Governance (Concluding Remarks) Nikitas E. Hatzimihail

315

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v

List of Authors

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Introduction: Market Regulation, Judicial Cooperation and Collective Redress Lukasz Gorywoda, Nikitas Hatzimihail and Arnaud Nuyts I. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 II. Market Regulation and Private Law in Europe . . . . . . . . . . . . . . . . . . . . . . . 1. The European Union as a ‘Regulatory State’ . . . . . . . . . . . . . . . . . . . . . a) Governance approaches towards public-interest objectives: from ‘Welfare State’ to ‘Regulatory State’ . . . . . . . . . . . . . . . . . . . . b) Defining Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . aa) Social Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . bb) Economic Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . c) The EU Program for the Regulation of the Internal Market . d) Market Integration as the Key Concept behind the European Regulatory State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. EU Private Law as Regulatory Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a) Modern Concept of Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b) Fitting Private Law into the Modern Concept of Regulation III. Judicial Cooperation in Matters of Market Regulation . . . . . . . . . . . . . 1. The Area of Freedom, Security and Justice . . . . . . . . . . . . . . . . . . . . 2. The Brussels I Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a) Objectives and Principles of Brussels I Regulation . . . . . . . . . . . b) The Revision Process of the Brussels I Regulation . . . . . . . . . . 3. The EU Private Regulatory Law and its Impact on Judicial Cooperation in Civil and Commercial Matters . . . . . . . . . . . . . . . a) Cross-Border Civil Litigation, Private Enforcement and the European Regulatory Space . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4 5 10 12 12 13 13 15 17 18 19 24 25 27 29 30 32 34

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aa) Enforcement Rules and the Transformation of Private Law bb) Public Regulation and Private Law Relationships . . . . . . . . . . . . cc) Civil Procedure and Its Purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . . dd) The Public / Private Divide and the Regulatory Function of European Civil Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ee) Public and Private Enforcement of EU Law . . . . . . . . . . . . . . . . . b) Extraterritoriality of Regulatory Regimes . . . . . . . . . . . . . . . . . . . aa) Extraterritoriality of Claims based on Securities Regulation Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . bb) Extraterritoriality of Competition Law Claims . . . . . . . . . . . . . c) Development of Collective Redress Proceedings . . . . . . . . . . . . aa) Specific Cross-border Problems in the Practical Application of the Jurisdiction Rules of Brussels I Regulation . . . . . . . . . . . bb) Special Rules on Collective Redress to Ensure Effective Enforcement of EU Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

IV. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

34 35 36 37 40 43 43 44 45 48 53 54

A. The Private International Law of Collective Redress Collective Redress and the Jurisdictional Model of the Brussels I Regulation Burkhard Hess 1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

59

2. Multiple Claimants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 3. Multiple Defendants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

63

4. Collective Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

64

5. Conclusion: The Need for a Coherent Instrument on Cross-Border Collective Redress in the European Union . . . . . . . . . . .

67

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The Consolidation of Collective Claims Under Brussels I Arnaud Nuyts 1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

69

2. Domicile of the Defendant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

71

3. Protective Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

73

4. Special Jurisdiction: Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 5. Special Jurisdiction: Tort . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 6. Parallel Collective Redress Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . .

79

Recognition, Enforcement and Collective Judgments Richard Fentiman 1. Preamble . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

85

2. Four Issues – and Some Deeper Questions . . . . . . . . . . . . . . . . . . . . . . . . .

88

3. The Enforcement of Collective Judgments . . . . . . . . . . . . . . . . . . . . . . . . .

89

4. The Preclusive Effect of Collective Judgments . . . . . . . . . . . . . . . . . . . . . . a) The Risk of Non-preclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b) Non-parties and Procedural Justice . . . . . . . . . . . . . . . . . . . . . . . . . . . c) Indefeasible Rights of Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . d) Absentees and Due Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . e) Contingent Difficulties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . f) Interim Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

91 91 92 93 94 95 96

5. The Status of Collective Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

98

6. Preclusion and Collective Judgments in the EU regime . . . . . . . . . . . a) Problems Stated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b) Non-recognition and Public Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . c) Non-recognition and Due Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . d) Preclusion and Collective Settlements . . . . . . . . . . . . . . . . . . . . . . . .

100 100 101 101 102

7. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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a) The Recognition of Foreign Settlements . . . . . . . . . . . . . . . . . . . . . . b) Remission to National Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . c) The Problem of Collective Justice . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

105 106 107

European Class Actions and Applicable Law Ralf Michaels 1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a) Problem and Discussion in the EU . . . . . . . . . . . . . . . . . . . . . . . . . . . b) The US Comparison . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . c) Structure of the Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

111 111 114 116

2. Class Action and Applicable Law: Foundations . . . . . . . . . . . . . . . . . . . a) Three Functions of Class Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b) The Class Action and multiple potentially applicable laws . . . c) Existing Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . d) The triple problem of private international law: . . . . . . . . . . . . . . aa) Consolidation of Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . bb) Regulation and Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

116 117 118 120 122 123 123

3. Class Certification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a) Legal Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b) Only nationwide collective redress? . . . . . . . . . . . . . . . . . . . . . . . . . . c) A New Choice-of-Law Rule? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . d) Certification Despite Potential Differences in Law . . . . . . . . . . .

124 124 125 126 126

4. Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a) Application of different laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b) Consolidation through Choice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . aa) Unanimous Choice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . bb) Unilateral Choice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . cc) Exercise of Choice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . c) Consolidation through a new Choice-of-Law Rule . . . . . . . . . . . aa) Defendant’s incorporation law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . bb) Market Most Affected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . cc) “Average Law” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . dd) Place of Conduct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ee) General problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

128 129 130 130 132 133 133 134 134 135 136 137

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d) Consolidation through Application of Lex Fori . . . . . . . . . . . . . . aa) Lex Fori in Existing EU Private International Law . . . . . . . . . bb) Lex Fori for Harmonized Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . cc) Lex Fori for Unharmonized Law . . . . . . . . . . . . . . . . . . . . . . . . . . .

138 138 139 140

5. Policy Suggestions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

140

B. New Perspectives on Collective Redress Collective Redress and Competition Policy Lia Athanassiou 1. Introductory remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a) Points of horizontal consensus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b) Collective redress as a tool of competition policy . . . . . . . . . . . .

145 145 147

2. Issues to be addressed in competition claims . . . . . . . . . . . . . . . . . . . . . a) Identification of the victims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . aa) The problem of passing-on and the responses of national laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . bb) Collective litigation and levels of chain . . . . . . . . . . . . . . . . . . . . b) Quantification of damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . aa) Techniques of quantification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . bb) Quantification on a collective basis: the idea of an “approximate compensation” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . c) Multiplicity of enforcing agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . aa) Decentralized application of competition rules . . . . . . . . . . . . bb) The role of competition authorities in collective redress . . .

149 149 149 152 154 154 155 157 157 159

3. Collective redress implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a) The various profi les of collective actions . . . . . . . . . . . . . . . . . . . . . aa) One size does not fit all . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . bb) Gate-keepers and Opt-out mechanisms . . . . . . . . . . . . . . . . . . . . b) The appropriate remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . aa) Compensation as one of the available remedies . . . . . . . . . . . . bb) Is there a need for distribution? . . . . . . . . . . . . . . . . . . . . . . . . . . . . cc) The Greek model as an example of good intentions . . . . . . . . c) Issues requiring a uniform European approach . . . . . . . . . . . . . .

160 160 160 162 165 165 166 167 168

4. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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The Emerging EU Legal Regime for Collective Redress: Institutional Dimension and Its Main Features Lukasz Gorywoda 1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Institutional Dimension of the Emerging EU Regime of Collective Redress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a) Collective Redress Policy Developed by DG SANCO . . . . . . . . b) Collective Redress Policy Developed by DG COMP . . . . . . . . . c) The Joint Work of the European Commission: Towards a Horizontal EU Legal Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . d) National Models of Collective Redress . . . . . . . . . . . . . . . . . . . . . . . e) Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. The Main Features of the Emerging EU Regime of Collective Redress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a) Collective Redress is Expected to Improve Enforcement of the EU Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b) Collective Redress is Expected to Improve Access to Justice . c) Collective Redress Should Not Incentivize Abusive Litigation Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

173

174 175 177 179 181 184

184 184 185 186 187

The Class Action Experience in Israel and the Value of Having a Representative with a Personal Claim Michael M. Karayanni 1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

189

2. The Main Requisites for Filing a Class Action under CAL, 2006 . . . a) Preconditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . aa) The Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . bb) Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . cc) Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

192 192 192 192 193

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b) Administering the Class Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . aa) Certification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . bb) Adjudication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . cc) Withdrawal and Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . dd) State Institutions as Defendants in Class Actions . . . . . . . . . . dd) Judgment and Rewards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Section Two: Who Should Represent the Class and Why it Matters? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a) Historical Barriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b) The Value of the Personal Claim in Negative-Value Class Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . c) Has the Israeli Legislature Realized These Objectives in CAL, 2006? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. Summary and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

194 194 195 196 198 199

200 201 203 206 208

Class Arbitration in Europe? Luca G. Radicati di Brozolo 1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

209

2. Class arbitration and multiparty arbitration . . . . . . . . . . . . . . . . . . . . . .

211

3. The scope for class arbitration: what type of cases? . . . . . . . . . . . . . .

212

4. The main issues posed by class arbitration . . . . . . . . . . . . . . . . . . . . . . . a) Is the notion of a class action compatible with that of arbitration? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b) Consent to class arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . c) The waiver of class arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . d) Other problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . e) The specific issues of international arbitration . . . . . . . . . . . . . . .

214 214 216 217 218 218

5. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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C. Case Studies on Cross-Border Collective Redress Private International Law and Collective Redress – The case of Antitrust damage claims Michael Hellner 1. Private Antitrust Damages Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

223

2. Jurisdiction – the Brussels I Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . 225 a) Choice of Court Agreements – Article 23 . . . . . . . . . . . . . . . . . . . . 226 b) Defendant’s domicile – Article 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228 c) Actions in contract – Article 5(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229 d) Actions in tort – Article 5(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230 e) Consolidation of Actions – Article 6(1) . . . . . . . . . . . . . . . . . . . . . . . . . . 234 3. Choice of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a) Tort . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b) Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

236 236 237

4. Recognition and Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

238

Compensatory Consumer Collective Redress and the Brussels I Regulation (Recast) Cristina González Beilfuss and Beatriz Añoveros Terradas 1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

241

2. Definition of collective redress: injunctive and compensatory actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

243

3. Collective consumer redress and the Brussels I Recast Regulation a) The domicile of the defendant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b) Jurisdiction in consumer contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . aa) Applicability of Section 4 Chapter II to compensatory collective redress: representative and group actions . . . . . . . c) Jurisdiction in consumer contracts in matters relating to a contract: art. 7(1) BIR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . aa) The application of the proper rules on jurisdiction: lurality of consumers domiciled in different Member States . . . . . . .

245 246 246

4. Concluding remarks

257

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Rethinking Collective Redress, Consumer Protection and Brussels I Regulation Małgorzata Posnow-Wurm

259

1. The Henkel case connecting collective redress, consumer protection and Brussels I Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

259

2. The material scope of Brussels I Regulation and collective redress: action brought by a person governed by private law v. action brought by a public body . . . . . . . . . . . . . . . .

261

3. The scope of Section 4 of the Brussels I Regulation: collective interest of group of consumers v. the individual consumers’ interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

268

4. The scope of points (1) and (2) of Article 7 of the Brussels I Regulation: the case of class (group) actions: consumers as both the party to the action and the party to the relationship concerned by the proceedings . . . . . . . . . . . . . . . . . . . . . .

270

5. Is designing of the new rule on jurisdiction adapted to collective redress in the field of consumer protection possible? . . . . . . . . . . . .

274

Transnational Securities Fraud Class Actions: Looking Towards Europe? Natalia A. Kapetanaki 1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

277

2. The Pre-Morrison Era of Securities Fraud Class Actions Blossom in the United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

280

3. The Post-Morrison Era of Securities Fraud Class Actions Decline in the United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

282

4. Is it the Dawn of a European Era for Securities Class Actions? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Rome II and the Law of Financial Markets: The Case of Damage Caused by the Breach of Disclosure Sabine Corneloup 1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

291

2. Application of the Rome II Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . a) The law of contract (culpa in contrahendo) . . . . . . . . . . . . . . . . . . . b) The law of the place of injury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . aa) Difficulty in locating the damage . . . . . . . . . . . . . . . . . . . . . . . . . . . bb) Inadequacy of the place where the damage occurred . . . . . . c) The law of the common habitual residence of the parties . . . . d) The law that manifestly presents the closest links . . . . . . . . . . . . e) The law chosen by the parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

298 299 300 300 302 303 304 304

3. Specialization of the rules of the Rome II Regulation . . . . . . . . . . . . . a) Draft proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b) The testing of the proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

306 306 308

Collective Redress and Global Governance (Concluding Remarks) Nikitas E. Hatzimihail 1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. (Re)thinking Collective Redress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (a) Typology of collective redress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (b) Policy considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (c) Procedure Mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Problems under the existing framework . . . . . . . . . . . . . . . . . . . . . . . . . . (a) Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (b) Parallel proceedings and lis pendens . . . . . . . . . . . . . . . . . . . . . . . . . . . (c) Recognition and enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (d) Applicable law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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315 315 315 317 318 319 320 322 322 323 325

Introduction: Market Regulation, Judicial Cooperation and Collective Redress Lukasz Gorywoda, Nikitas Hatzimihail and Arnaud Nuyts I. Introduction Market regulation constitutes one of the principal foundations of European integration.1 Liberalization of trade and the need to remove non-tariff barriers to trade has led to the reappraisal of regulatory policies and techniques used at the Member State level. The creation and keeping of a well-functioning internal market, however, has made necessary the proliferation of market regulation instruments: existing areas of regulatory interest have been expanded; new areas have been developed; various legal categories have been reconsidered and reconfigured. Regulatory policy – driven by the European Union’s internal market objective – has turned into a distinct science. Regulatory law challenges the borderlines of demarcation between public and private law. Political ideologies, economic and social policies are impacting subjects previously thought as ‘technical’ or ‘value neutral.’ Regulatory enforcement is an important dimension of all this. Challenges to European and national regulatory regimes tend to spill over the borders of individual Member States, as well as the external frontiers of the European Union. These challenges require horizontal and vertical cooperation between a growing number of judicial and regulatory authorities – and this growth in numbers entails the need to delimit the prescriptive jurisdiction of respective authorities. This need is made more pressing given the recent trend of relying in part on the pursuance of civil remedies by aggrieved private parties: Regulation 1 / 2003 offers the best example with regard to antitrust enforcement. This coincides with another current trend which is the institution of collective remedies and the development of mass litigation as a tool of private-law governance.2 In mass litigation scenarios, 1

2

See G Majone (ed), Regulating Europe, (Routledge, London and New York 1996) 324; MP Egan, Constructing a European Market: Standards, Regulation, and Governance (Oxford University Press, Oxford 2001). For an overview of these developments see R Mulheron, ‘The Case for an Opt-Out Class Action for European Member States: A Legal and Empirical Analysis’ (2009) 15 Columbia Journal of European Law 409-454. For a broader picture of collective

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multiple fora are engaged, as market actors file suits in different places, and the role of civil justice systems in the regulation of our complex society is being highlighted and expanded.3 This exciting new institutional environment, defined by the notions of European regulation and regulatory enforcement, poses its own challenges for private international law, which so far have not been fully met.4 Admittedly, conflicts scholarship has devoted considerable attention to the private-law aspects of especially consumer protection; case law and even the Community legislature have also been active in this field. Competition law has also invited substantial scholarly discussion, notably from the point of view of determining ‘unilaterally’ the extraterritorial jurisdiction of regulatory authorities. Securities regulation has also been examined. Conflicts discussion, however, does not always grasp adequately the complex policies involved in regulatory enforcement. There is still much to be done in terms of a thorough, systematic study of regulatory enforcement from a private international law perspective. The contributions in this book aim at providing such a comprehensive approach to the private international law of European market regulation, with a special focus on cross-border collective redress. They constitute the culmination of a medium-term research project whose stated aim was to ‘undertake a comprehensive study of the legal issues (pertaining to judicial cooperation in civil matters) which arise from the cross-border application of market regulation and consumer welfare regimes within the European Union, including cases where third countries are also involved, and relevant aspects of e-commerce and e-justice.’5 The starting point for such a project is, inevitably, the field of European Union judicial cooperation in civil and

3

4

5

2

redress developments see D Hensler et al. (eds), The Globalization of Class Actions, (SAGE Publications, Thousand Oaks, California 2009). S Williams, ‘Mass Tort Class Actions: Going, Going, Gone?’ (1983) 98 Federal Rules Decision 323-335, 324. Important exceptions are J Basedow, ‘Confl icts of Economic Regulation’ (1994) 42 American Journal of Comparative Law 423-447; J Basedow, ‘Souveraineté territoriale et globalisation des marchés: le domaine d’applications des lois contre les restrictions de la concurrence’, Recueil des cours 264 (1997); H Muir Watt, ‘Choice of Law in Integrated and Interconnected Markets: A Matter of Political Economy’ (2003) 7 Electronic Journal of Comparative Law; M Audit et al. (eds), Conflits de lois et régulation économique. L’expérience du marché intérieur, (Lextenso Éditions, Paris 2008); J Hill, Cross-Border Consumer Contracts (Oxford University Press, Oxford 2008); J. Basedow , S Francq and L Idot (eds.), International Antitrust Litigation: Confl ict of Laws and Coordination (Hart Publishing, 2012). For more on the project see www.dipulb.be.

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I. Introduction

commercial matters, which has blossomed especially since the creation of the Area of Freedom, Security and Justice in the late 1990s. Construction of this European Area is informed by EU policies on the internal market, as illustrated by the new guidelines promoted by the European Commission under its ‘2020 Strategy’.6 Our research was challenged and stimulated by the legislative projects that were being undertaken at the EU level (without being oblivious to national developments). The revision (“recast”) process of the Brussels I Regulation that led to Regulation 1215 / 2012 “Brussels I bis” was especially important in this regard.7 The reform of collective redress, both with regard to competition policy and consumer protection, is still a matter of discussion between policy makers, reflected in Commission working documents and, more recently, draft instruments.8 The purpose of this Introduction is to serve as a background paper for the doctrinal and policy discussions that follow in the main body of this book, approaching the subject from the point of view of European private law and market regulation. Questions for discussion will be identified, premises elaborated and concepts defined (or redefined). In more concrete terms, we could say that this this Introduction has three objectives. The first is to explain the concept and policies underlying market regulation, 6

7 8

COM(2010) 2020 final, Communication from the Commission, ‘Europe 2020: A Strategy for Smart, Sustainable and Inclusive Growth’, Brussels, 3.3.2010. Under the ‘2020 Strategy’, consumers and businesses are the central focus and are supposed to be real beneficiaries of the internal market, which – under this agenda – is conceived as an instrument for a development and economic growth. See notably para. 3.1 ‘The Commission will propose action to tackle bottlenecks in the single market by: […] Making it easier and less costly for businesses and consumers to enforce contracts and to recognize court judgments and documents in other EU countries.’ On the Brussels I recast see below, section II.B.2. White Paper on Damages actions for breach of the EC antitrust rules COM(2008) 165 fi nal, Brussels 2.4.2008; Green Paper on Consumer Collective Redress COM(2008) 794 fi nal, Brussels 27.11.2008; Commission Staff Working Document, Public Consultation: Towards a Coherent European Approach to Collective Redress SEC(2011) 173 final, Brussels 4.2.2011; Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions “Towards a European Horizontal Framework for Collective Redress”, Strasbourg 11.6.2013, COM(2013) 401 final; see also the latest Proposal for a Directive of the European Parliament and Council on certain rules governing actions for damages under national law for infringements of the competition law provisions of the Member States and of the European Union, Strasbourg 11.6.2013, COM(2013) 404 fi nal.

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Market Regulation, Judicial Cooperation and Collective Redress

regulatory enforcement and the role of the judiciary. The second is to consider the tension between EU regulatory law and the EU regime of judicial cooperation in civil and commercial matters, notably under the Brussels I Regulation. The third one is to frame the issues of collective redress in jurisdictional terms. These objectives reflect in the structure of this Introduction. Part One discusses the concept of market regulation (and the importance of regulatory measures for European market integration), including the regulatory function of European private law (broadly defined). Part Two discusses the regulatory aspects of European private international law (especially the international civil litigation regime consecrated by the Brussels I instruments), the impact of EU regulatory law on the modes of judicial cooperation in civil and commercial matters and the tensions arising between the existing EU regime for civil litigation and the latest developments in EU regulatory law and policy.

II. Market Regulation and Private Law in Europe This Part is intended to provide an analytical framework of market regulation, its place in the project of European integration and its role in privatelaw regimes. Market regulation – which we define in broad terms, as a collection of policies for pursuing collective interests (transcending the individual interests of private parties involved in bilateral market relationships) – has been an important tool of European integration, to the point that the European Union has been frequently characterized as a ‘regulatory state’. We shall outline these ideas and explore two distinct conceptions of regulation: on the one hand, the more traditional understanding of market regulation as a somewhat public-law tool (Section I.A); on the other hand, the regulatory function of private law – and the increased role acknowledged to European private law in the pursuance of regulatory objectives (Section I.B). The definition of private law used in the Introduction is also a broad one. For the purposes of the project, we have approached private law as a complex of legal regimes that frame and regulate market transactions with reference to both individual and collective interests; our definition includes the enforcement mechanisms of these regimes. Whereas admittedly the starting point for any examination of private law, including European private law is the “general” law of obligations, we have singled out three sectors of special interest: consumer, competition and securities law. All three fields have been strongly influenced, reshaped or even developed by European law; they demonstrate a strong regulatory aspect and they employ

4

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II. Market Regulation and Private Law in Europe

to a more or less significant degree doctrinal tools and remedies from both contract and tort.

1. The European Union as a ‘Regulatory State’ Market regulation has been one of the principal foundations of European integration.9 Negative and positive integration measures have been used in order to build a well-functioning European internal market, while providing adequate protection to consumers, employees and victims of antitrust infringements – and to balance the competing interests of Member States.10 From a macro perspective, the internal market project has been based upon the proposition that if common standards of commercial dealings had not been developed, European countries would have remained reluctant to engage in mutual trade relationships. From a micro perspective, in turn, the objective behind the creation of the internal market – which comprises an area of free movement for goods, people, services and capital – has been to provide European citizens with material benefits produced by the economic growth an enlarged marketplace was and is still expected to bring about.11

9

10

11

See the contributions in G Majone (ed), Regulating Europe (Routledge, London and New York 1996) and NN Shuibhne (ed), Regulating the Internal Market, (Edward Elgar, Cheltenham 2006). For the concept of regulation as an instrument of deliberate (i.e. non-spontaneous) balancing of various collective interests see M-A Frison-Roche, ‘La construction du marché intérieur, expérience d’aff rontement dialectique entre le droit international privé et le droit de la régulation’ in M Audit, et al. (eds), Confl its de lois et régulation économique. L’expérience du marché interieur Lextenso Éditions, Paris 2008) pp. 261-274,261-262. According to Frison-Roche, to establish and maintain a common area (of regional integration) capable to sustain a socially acceptable equilibrium of confl icting collective interests (including the policies of protection of ‘weak’ parties), a body of well-defined rules and institutions is necessary; see ibid. Communication from the Commission to the European Parliament, the Council, the Economic and Social Committee and the Committee of the Regions, ‘Single Market Act. Twelve levers to boost growth and strengthen confidence: Working together to create new growth’, Brussels, 13.4.2011, COM(2011) 206 fi nal. According to the Commission, internal market has been ‘[a]t the heart of the European project since its inception’; para. 1, p. 3.

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Market Regulation, Judicial Cooperation and Collective Redress

An appropriate enforcement policy, embodied in adequate instruments, is necessary to ensure effective delivery of market regulation measures.12 The recent debate on the possible directions that the European integration project might take in the future, seems to be primarily focused on the issues related to the processes of constitutional reform of the EU. But a more specific focus on the interplay between the policies of market regulation and judicial cooperation in civil and commercial matters is certainly needed, given the important developments in the modern European practice and law of civil litigation. Those developments – in particular linked to the appearance of collective litigation within the common area of justice and to related (ongoing or planned) legislative reforms – put significant pressure on the Brussels regime of jurisdictional rules, which have been mainly conceived for individual litigation. As collective enforcement is now under scrutiny at both the national and European levels, the major unresolved issues – from a jurisdictional perspective – appear to be, inter alia, where the litigation is to take place, which court(s) should have jurisdiction and under what conditions. The appearance of collective dispute mechanisms within the European litigation space is in harmony with deeper trends in the EU private substantive law towards assuming regulatory functions.13 In fact, the interplay between market integration and market regulation has considerably influenced substantive private law in the EU. National systems of private law14 – before the impact of the European legislative and adjudicative activity – had been mainly perceived as essentially facilitative of private agreements and free from market regulation and political economy concerns.15 As such, the 12

13

14

15

6

It needs to be stressed at this point that there is an institutional barrier to the development of a fully-fledged EU enforcement policy. Th is barrier rests partly in the principle of subsidiarity but more in that of procedural autonomy. In short, it means that competence over enforcement of EU rules lies with Member States and the national obligation is merely to achieve the effect by means that are proportionate, effective and dissuasive. L Groywoda, Regulatory Functions of European Law: Theoretical Foundations and Practical Applications (Ph.D. Thesis, European University Institute 2013). We adopt a broad notion of private law. For the purposes of the project private law is understood as rules framing and regulating market transactions referring to both individual and collective interests, and including enforcement mechanisms. Three sectors have been chosen for preliminary investigation, i.e., consumer law, competition law and securities law (both contract and tort). Hesselink, among others, stressed that the objective of contract law is to protect one party against the other in order to avoid what is perceived as injustice; see Martijn W. Hesselink, ‘The Politics of European Contract Law: Who has an In-

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II. Market Regulation and Private Law in Europe

dominant trend was to view the main function of private law as enabling individuals to enter into market transactions. However, the objectives of market integration implemented through market regulation measures have significantly influenced the design of many fields of private law, including the consumer protection (both in contract and tort) and competition policies.16 One of the reasons for this development is the fact that the existing EU legislation follows a vertical partition in terms of economic sectors, abandoning traditional dichotomies between public / private law.17 The EU lawmakers therefore treat traditional private law instruments – such as tort or contract remedies – as one among many possible regulatory tools. As the internal market program has been developing, many principles underpinning classical measures of market regulation have started to define the principles of private law and shape its instruments.18 From a substantive perspective, those spill-over effects clearly demonstrate that regulatory policies are not a monopoly of public law.19 Under the impact of the policies behind the internal market, the public / private

16

17 18

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terest in what Kind of Contract Law for Europe?’ in S Grundmann and J Stuyck (eds), An Academic Green Paper on European Contract Law Kluwer Law International, The Hague 2002). To give another example, traditional European private law scholarship contends that the general clause of good faith is simply a corrective principle through which a legal system may establish what it considers to be the appropriate balance of interests between the individual parties; to this effect see national reports in R Zimmermann and S Whittaker (eds), Good Faith in European Contract Law, (Cambridge University Press, Cambridge 2000). Outside Europe, for the argument that it is best to rationalize private law as a body of law which finds its rationale in the corrective justice foundation see, JL Coleman, Risks and Wrongs (Cambridge University Press, Cambridge 1992), and EJ Weinrib, The Idea of Private Law (Harvard University Press, Cambridge, Massachusetts 1995). For the argument that competition law can be treated as private law (though, noting that whereas private law ‘[c]ontains general protection standards and reciprocity norms’, ‘[c]ompetition law is concerned with the protection of third parties, those who are not party to the agreements’) see, inter alia, K Cseres in Cafaggi & Muir-Watt 2008: 141. Cafaggi and Muir Watt (2009: xi). Regulation through private law occurs through, for example, mandating content of the contract, invalidating particular clauses, delineating circumstances for unenforceability of the contract, defining the notion of harm in tort law or limiting standing in civil actions. Other scenarios, of course, are possible to imagine. See L Gorywoda, Regulatory Functions of Contract Law. Muir Watt, ‘Choice of Law in Integrated and Interconnected Markets: A Matter of Political Economy’. For a historical account of the instrumental use of private law

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divide has become blurred. As a result, in many instances, private law has assumed public functions.20 From an institutional perspective, in turn, those developments highlight the importance of Member State judiciaries as essential actors entrusted with the task of giving effect to the regulatory policies set out at the European level. The absence of an effective system of enforcement mechanisms at the European level implies that the EU is dependent on enforcement at the national level.21 Given the existing institutional framework, private litigation has become an important regulatory device in Europe as Member States’ courts have been performing the role of a forum to give effect to the EU policies.22 Moreover, as many measures of the acquis communautaire relevant for private law matters are principle-based, i.e. formulated as standards rather than as rules, national judges perform a strategic function concerning their implementation.23 Such an institutional perspective draws our attention to the fact that to a large extent private law in the EU has been transformed through enforcement rules – or, to put it differently, by the way it is enforced. Although private law litigation still constitutes the principal avenue for compensating individuals, it has also become an important

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in the US economy see MJ Horwitz, The Transformation of American Law, 17801860 (Harvard University Press, Cambridge, Mass 1977). See N Reich, ‘The Public / Private Divide in European Law’ in H-W Micklitz and F Cafaggi (eds), European Private Law After the Common Frame of Reference Edward Elgar, Cheltenham 2010) pp. 56-89. C Barnard, The Substantive Law of the EU: The Four Freedoms (2nd edn Oxford University Press, Oxford 2007), 624. Under traditional account, the only role for a judge is to solve a bilateral dispute and to stop at that point. But it is clear that a solution of a bilateral dispute does affect the market. Because of that, a judicial resolution of a bilateral dispute should be approached from a regulatory perspective. Regulatory perspective acknowledges that judicial solving of a bilateral dispute has effects which transcend the two-parties relationship and serves wider policy goals. F Cafaggi, ‘Una governance per il diritto europeo dei contratti?’ in F Cafaggi (ed), Quale armonizzazione per il diritto europeo dei contratti? CEDAM, Padova 2003) pp. 183-211. On the choice between rules and standards see the seminal paper by L Kaplow, ‘Rules versus Standards: An Economic Analysis’ (1992) 42 Duke Law Journal 557-623. As applied to private international law, see N Hatzimihail and A Nuyts, ‘Judicial Cooperation Between the United States and Europe in Civil and Commercial Matters: An Overview of Issues’ in A Nuyts and N Watté (eds), International Civil Litigation in Europe and Relations with Third States (Bruylant, Bruxelles 2005) pp. 1-25.

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device to deter and regulate firms’ market behavior,24 with regard to both abusive contractual practices and product safety concerns. This implies that civil liability does not only perform a compensatory function but also provides firms with ex ante incentives to behave properly. Moreover, quality and safety standards – which we treat as forms of market regulation – are increasingly invoked in support of actions for compensation. There is also a growing role of civil adjudication through aggregate litigation in the EU. All of these developments demonstrate that litigation has been performing a regulatory role. In other words, regulatory objectives are enforced not only through administrative but also through judicial channels. First, civil liability can be considered as a non-administrative risk-control mechanism. Second, private enforcement of regulatory policies is a principal example of the increased role of a regulatory function for private law.25 Third, private law has gradually transcended individual relationships by means of aggregation of individual rights; the trend of aggregating private law suits has led to the emergence of collective litigation in Europe. As a result, enforcement of regulatory private law, private enforcement of regulatory policies and the management of aggregate litigation have turned into important regulatory concerns for the EU. The cross-border setting augments the theoretical, policy and practical implications. The current EU jurisdictional rules in civil and commercial matters – as contained in the Brussels I Regulation, as well as its recast – seem to answer few of these questions and, more generally, to not be taking adequate account of the regulatory policies that underlie many of the cross-border private enforcement claims. National judiciaries have so far been the main actors entrusted with giving effect to the policies set out at the EU level.26 In this respect, the European Court of Justice (ECJ / CJEU) regards national procedural law as 24

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It has been put forward by J Hill that ‘[c]onsumer litigation both publicizes abusive marketing and can play a role in deterring such practices being used in the future.’ J Hill, Cross-border Consumer Contracts (Oxford University Press, Oxford 2008), 87. As to enforcement of competition law, see K Cseres, ‘Governance Design for European Private Law: Lessons from the Europeanization of Competition Law in Central and Eastern Europe’ in F Cafaggi and H Muir Watt (eds), Govermence Design for European Private Law (Edward Elgar 2008). It can be said that national courts have been the driving force of European integration. Of course, the ECJ / CJEU has been the engine of integration, but the ‘fuel’ comes from national courts (via the preliminary reference procedure). See to this effect M Poiares Maduro, We The Court. The European Court of Justice and the European Economic Constitution. A Critical Reading of Article 30 of the EC Treaty (Hart Publishing, Oxford 1998); H-W Micklitz, The Politics of Judicial Co-

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an instrumental body of law the function of which is to ensure the effective application of the EU substantive law.27

a) Governance approaches towards public-interest objectives: from ‘Welfare State’ to ‘Regulatory State’

Governments have regulated economic and commercial activities since ancient times. However, state regulation in its modern sense – and scope – has been principally a twentieth-century phenomenon. The growth of regulation was triggered by rapid technological and economic changes; political demands for protection against monopolistic power and the risks of industrial activity; but also by other needs for the delivery of public interest objectives.28 The distinction has been made between two paradigms or approaches regarding the achievement of public-interest objectives. The first one chronologically has been called the ‘welfare state’ approach. This approach, which peaked in the 1960s, has been characterized by an emphasis on redistribution of income and the prevention of systemic cyclical economic crises. The ‘welfare state’ thus defined is concerned with social policy and its key tool has been the provision of merit goods (e.g. education or subsidized housing). The second paradigm has been called the ‘regulatory state’ approach. Rather than redistribution of income, the ‘regulatory state’ sees addressing market failures as its primary mission. As a consequence, whereas the welfare state has been providing merit goods, the regulatory state has been remedying market failures to ensure that public goods are provided in a given society. Regulatory state is thus concerned less with social policy and more with social regulation. Such social regulation is oriented towards the creation of public goods (such as consumer information). Its main sectoral developments have involved environmental and consumer protection.29

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operation in the EU: Sunday Trading, Equal Treatment and Good Faith (Cambridge University Press, Cambridge 2005). CN Kakouris, ‘Do the Member States Possess Judicial Procedural “Autonomy”?’ (1997) 34 Common Market Law Review 1389-1412, 1390. C Coglianese and RA Kagan, ‘Introduction’ in C Coglianese and RA Kagan (eds), Regulation and Regulatory Processes Ashgate, Aldershot 2007) pp. xi-xxxvii, xi. See also EL Glaeser and A Shleifer, ‘The Rise of the Regulatory State’ (2003) XLI Journal of Economic Literature 401-425. Majone (ed), Regulating Europe, 59.

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Whereas the ‘welfare state’ approach found resonance in the postwar domestic context of Western and Southern European countries, the ‘regulatory state’ flourished in the US and the EU. Obviously, the shift in political economy away from the interwar and early postwar ideas and towards neoclassical economics played its part. But the key reason for this divergence in approach between national and ‘continental’ / ‘federal’ level is an institutional one: both the US federal government and the EU institutions have, on the one hand, a limited or ‘subsidiary’ constitutional mandate and, on the other hand, a relatively limited budget, both restraints that could not allow for redistributive policies. The dominant policy goal of the EU has been the creation and regulation of the internal market on a regional scale.30 The EU environmental and social policies, the single currency, budgetary policies, and justice and internal affairs policies are in many respects treated as ‘flanking’ policies of this dominant policy goal. These policies are intended to make the European internal market work more effectively and efficiently (through, for example, the policy of the single currency), to correct potential market failures (mainly through various consumer, environmental and social policies), to compensate potential losers from market integration (prevalently through budgetary policies) and to address potential social and security externalities from market integration (by way of justice and interior policies).31 It is therefore possible to conclude that – given the primacy of the internal market program and the centrality of the EU market regulation policies – the EU can be described as a ‘regulatory state’.32 This concept aptly captures the contrast with the ‘welfare states’ at the national level, where the main policy instruments of government intervention are taxation and public spending rather than market regulation. Whereas a welfare state deliberately aims to redistribute resources from one group of citizens in society to another, the aim of a regulatory state is to benefit all citizens more or less equally.33 The concept of regulation and the instruments through which regulation is implemented have been developing over time, in parallel with the methods available for delivering public interest objectives.

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M Thatcher, ‘European Regulation’ in J Richardson (ed), European Union: Power and Policy-making 3rd edn Routledge, Oxon 2006) pp. 312-327. See, in general, P Craig and G De Búrca, EU Law: Text, Cases, and Materials (Fourth edn Oxford University Press, Oxford 2008). Majone (ed), Regulating Europe. Majone, ‘The European Community Between Social Policy and Social Regulation’.

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b) Defining Regulation

Regulation is not a discrete subject but a place where a number of different laws (both of public and private nature) and concepts come together. It is a broad concept, which covers a wide range of institutional arrangements. In practice, however, regulation is mainly associated with the employment of legal instruments for the implementation of social and economic policy objectives. In other words, regulation is commonly treated as the restraints on market actors’ behavior to foster a public interest goal.34 Even though there exists no scholarly consensus on the exact definition of regulation, the essence of this concept has been widely accepted in the literature as well as in the policy practice.35 According to Selznick the central meaning of regulation is ‘sustained and focused control exercised by a public agency over the activities that are valued by a community’.36 Selznick’s take on the concept of regulation can be called as traditional, i.e. the one that limits the concept of regulation to measures of public law.37 A wide variety of regulatory instruments exists, but opinions differ as to their taxonomy. We shall follow the majority view, which classifies regulatory instruments according to the distinction between social and economic regulation.38

aa) Social Regulation

Social regulation deals with such matters as health and safety, environmental protection and consumer protection and tends to be justified by reference to externalities and asymmetric information. It may be expressed through the following instruments: (i) prior approval; (ii) mandatory standards; (iii) information disclosure; and

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S Breyer, Regulation and Its Reform (Harvard University Press, 1982); A Ogus, Regulation: Legal Form and Economic Theory (Clarendon Press: The Clarendon Law Series, Oxford 2004). Ogus, Regulation: Legal Form and Economic Theory, 4. P Selznick, ‘Focusing Organizational Research on Regulation’ in R Noll (ed), Regulatory Policy and the Social Sciences University of California Press, Berkeley 1985). H Collins, Regulating Contracts (Oxford University Press, Oxford 1999), 7. See also L Gorywoda, Regulatory Functions of European Contract Law. See Ogus 2004 and Viscusi et al. 2005.

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(iv) economic instruments.39

bb) Economic Regulation

The second area of regulation is economic regulation. The focus of economic regulation is to provide a substitute for competition with respect to natural monopolies. This kind of regulatory intervention may be effectuated through the following legal forms: (i) public ownership; (ii) price and quality regulation; and (iii) competitive public franchising.40

c) The EU Program for the Regulation of the Internal Market

Contemporary society has received numerous welfare gains but also faces a set of new issues of regulatory interest. The latter include, for example, an increase in the amount of negative externalities resulting from the growth of new forms of industrial activity, a rise of political demand for control over holders of monopolistic power, a transformation of social preferences over the distribution of gains from trade or a development of such solidaristic concepts as services of general and economic interests. In Europe, one of the most important developments has been the rise of the EU institutional structure, putting in motion a market integration program. The EU’s market integration program has profoundly transformed the European regulatory space, both with respect to regulatory processes and legal instruments employed for regulatory purposes. The internal market program started on 1 January 1993, after the passage of almost three hundreds pieces of legislation to enable the basic elements of the internal market to be established.41 However, in effect the internal market is still an ongoing project, as major areas of the economy

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See R Baldwin and M Cave, Understanding Regulation: Theory, Strategy, and Practice (Oxford University Press, Oxford 1999). A Ogus, Regulation: Legal Form and Economic Theory (Hart Pub., 2004). On these policies see R Dehousse, ‘Integration v. Regulation? On the Dynamics of Regulation in the European Community’ (1992) 30 Journal of Common Market Studies 383-402.

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(such as the provision of services and the professions) still operate in separate national markets rather than in a single Europe-wide market.42 Creation of the internal market has involved both deregulatory and reregulatory elements. (a) On the deregulatory side (i.e. negative integration measures), creating the internal market involved the removal of barriers to the free movement of goods, services, capital, and labor between the EU member states. Three types of barriers had to be removed to enable free movement to take place. First, the internal market required the removal of certain fiscal barriers, such as the harmonization of value added tax and excise duties (on goods like alcohol and tobacco). Second, the internal market required the removal of physical barriers on the movement of goods and persons, such as the abolition of customs formalities, paperwork, and inspections at borders between the Member States. Removing border controls on the movement of persons was also an original aim of the internal market program. Finally, the internal market required the removal of technical barriers to the free movement of goods and services, such as separate national product standards that could be used as ‘non-tariff barriers’. The EU had tried to establish common standards via harmonized rules throughout the EU. However, in the landmark Cassis de Dijon judgment in 1979,43 the ECJ / CJEU established the principle of ‘mutual recognition’, whereby any product meeting the standards of one Member State can be legally sold in all other Member States. This principle became the basis of a ‘New Approach’ to the creation of the internal market, whereby harmonization was limited to minimum technical and health and safety standards.44 Another key area of removal of technical barriers to trade has been in public procurement, where rules were established which prevent governments from favoring home companies in public contracts. A host of EU directives have also been passed to liberalize air, water, and road transport, and to open up national energy, telecoms, and television markets. Regarding the movement of capital, controls on the free flow of capital between the Member States were abolished, and the European Company Regulation, which 42

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Article 114 TFEU (ex Article 95 EC) – dealing with approximation of laws – has served as a legal basis for EU private law legislative measures insofar as they have been intended to improve the conditions for the establishment and functioning of the internal market. Case 120 / 78, Rewe-Zentral AG v Bundesmonopolverwaltung für Branntwein. On these developments see S Weatherill, ‘New Strategies for Managing the EC’s Internal Market’ (2000) 53 Current Legal Problems 595-619. On recent reform of the New Approach see L Gorywoda, ‘The New European Legislative Framework for the Marketing of Goods’ (2010) 16 Columbia Journal of European Law 161-169.

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II. Market Regulation and Private Law in Europe

enabled multi-national companies to be registered as a single Europeanwide entity, was adopted in 2001.45 (b) On the re-regulatory side (i.e. positive integration measures), the EU replaced, as part of the internal market program, existing measures of national regulation with new European-wide regulatory approaches. The three clearest examples seem to be competition, environmental, and social policies. The EU’s re-regulatory policies are also usually regarded as being aimed to benefit all EU citizens rather than any particular group of citizens. EU regulatory policies perform this function by correcting certain ‘market failures’ that might arise in a regional-scale market. For example, harmonized consumer protection standards enable consumers to gain information about the quality of products that would otherwise not be publicly available. In turn, health and safety standards and environmental standards reduce the adverse effects (‘negative externalities’) of market transactions on individuals not participating in the transactions.46 Competition policy is aimed at preventing monopolistic market structures, market distortions, and anti-competitive practices. And industry regulators, through such instruments as price controls, have a task to ensure that ‘natural monopolies’ operate according to efficient and fair market practices.

d) Market Integration as the Key Concept behind the European Regulatory State

In the previous sub-section we could see that the EU has been built on the principle of market integration. From an economic perspective, the idea behind the creation of the EU was that there had been economic efficiency which, in the absence of integration, would not have been exhausted. This idea is based on the premise that, if there is a large loss from trade, market actors get together to create institutional arrangements that reduce that inefficiency.47 The conclusion that welfare gains can be achieved through the opening of the markets is one of the major results of international trade theory.48 45

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Council Regulation 2157 / 2001 on the Statute for a European Company (SE), Official Journal L 294 / 1, 10 November 2001. P Burrows, ‘On External Costs and the Visible Arm of the Law’ (1970) 22 Oxford Economic Papers 39-56. On the economics of legal integration see W Molle, The Economics of European Integration: Theory, Practice, Policy (Ashgate, Aldershot 2001). JU-M Nielsen et al., An Economic Analysis of the EC (McGraw-Hill Book Company, London 1992), 6.

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Against this background, Member States agreed to complete an internal market by the year 1992, then moved toward this objective by way of extensive liberalization and regulatory reforms at the EU level. Despite the achievements of the 1992 internal market program, the internal market has not yet been completed. As part of this ongoing process, the Commission recently adopted the ‘Single Market Act’, deemed to be a plan ‘to increase growth and restore confidence in the benefits of market integration in Europe.’49 The role of market integration in the construction of the EU has been crucial. According to Majone, the overriding aim of market integration in the construction of the EU has been there from the very beginning of the EU. He has observed that ‘[t]he imposing structure of European laws, institutions and policies has been erected on the basis of a few operational principles that have remained mostly implicit, but nevertheless have shaped the political culture of the European Union. […] Arguably the most important of these implicit operational principles says that integration has priority over all other competing values, including democracy.’50 Thus, most of the EU policies have been driven by the objective of market integration, while the main instrument for market integration has been regulation. Indeed, the EU has been called by Joerges a ‘market without state’.51 Accordingly, market regulation has been one of the cornerstones of European economic integration.52 Furthermore, the main instrument employed for the purposes of market regulation in the EU was the law. According to Weiler, from the EU decision maker’s standpoint the ‘[l]aw is seen primarily, if not exclusively, as having an instrumental function: the translation into operational language of the policies decided upon by the political organs so that these

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Communication from the Commission to the European Parliament, the Council, the Economic and Social Committee and the Committee of the Regions, ‘Single Market Act. Twelve levers to boost growth and strengthen confidence: Working together to create new growth’, Brussels, 13.4.2011, COM(2011) 206 fi nal; Communication from the Commission to the European Parliament, the Council, the Economic and Social Committee and the Committee of the Regions, ‘Single Market Act II: Together for a New Growth’, Brussels, 3.10.2012, COM(2012) 573 fi nal. G Majone, Europe as the Would-be Power: The EU at Fifty (Cambridge University Press, Cambridge 2009), 1. C Joerges, ‘European Economic Law, the Nation State and the Treaty of Maastricht’ in R Dehousse (ed), Europe After Maastricht: An Ever Closer Union? Law Books in Europe, Munich 1994). See, for instance, M Egan, Constructing a European Market: Standards, Regulation, and Governance.

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II. Market Regulation and Private Law in Europe

may be put into action.’53 Thus, an instrumental role of the law in the process of market integration is evident.

2. EU Private Law as Regulatory Law Market integration has been the overarching goal driving the development of the European Union; all legal instruments available to the EU decisionmakers were therefore used in pursuit of that goal, regardless of whether they would be regarded as private- or public-law. The EU regulatory program unavoidably challenged the public / private divide to its core.54 The body of existing EU private law is one of the instruments used to regulate the internal market. It flows from the assumption that private law is capable of performing regulatory functions and as such should be treated as an important instrument in a regulatory toolkit of a modern state.55 This assumption is based on the evidence which demonstrates that markets have been organized and regulated by a combined public and private-law framework.56 Private law – defined here broadly – has not only been affected in its core by the growth of the EU regulatory state but has also in its turn been explicitly employed in pursuance of achieving market integration in Europe.57 The objective of this section is to better identify the regulatory functions of European private law.

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J Weiler, ‘Community, Member States and European Integration: Is the Law Relevant?’ (1982) 21 Journal of Common Market Studies 39-56. Reich, ‘The Public / Private Divide in European Law’ in Cafaggi and H-W Micklitz (eds), European Private Law after the Common Frame of Reference (Edward Elpor 2010). F Cafaggi and H Muir Watt, ‘Introduction’ in F Cafaggi and H Muir Watt (eds), Making European Private Law: Governance Design Edward Elgar, Cheltenham 2008); F Cafaggi and H Muir Watt (eds), The Regulatory Function of European Private Law, (Edward Elgar, Cheltenham 2009); H Muir Watt, ‘Brussels I and Aggregate Litigation or the Case for Redesigning the Common Judicial Area in Order to Respond to Changing Dynamics, Functions and Structures in Contemporary Adjudication and Litigation’ (2010) 30 Praxis des Internationalen Privat- und Verfahrensrechts 111-116. L Gorywoda, Regulatory Functions of European Contract Law. B Arruñada and V Andonova, ‘Market Institutions and Judicial Rulemaking’ in C Menard and MM Shirley (eds), Handbook of New Institutional Economics Springer, Dordrecht 2005) pp. 229-250. See, L Gorywoda, ‘Regulatory Functions of European Contract Law.

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a) Modern Concept of Regulation

As already mentioned, regulation is a term with fuzzy boundaries. Whereas the civil-law core of traditional private law was neatly organized into contract, tort and property in the nineteenth-century classification enterprises of classical legal thought, regulation is a novel legal category.58 This might be the principal source of conceptual problems with accepting the idea that not only administrative but also private law performs regulatory functions. The problems are to some extent overcome if one adopts a functional notion of regulation.59 Traditionally, as presented above, the term ‘regulation’ has been used by economics and legal scholars to denote a distinctive set of techniques employed by states to control the operations of markets. It is self-evident that within this narrow perspective regulation and private law are viewed as competing regimes: the former has directive function, is public in its nature, centralized in character, and operates ex ante, whereas the latter is facilitative, private, decentralized, and works ex post.60 However, such distinction is not satisfactory because it does not take into account the regulatory significance of the incentive effects created by private law.61 Thus, it seems to be more helpful to employ a generic concept of regulation that refers to any system of rules intended to govern the behavior of its subjects, which consists of three essential functions: (1) standard-setting, (2) monitoring, and (3) enforcement.62 It follows that within this functional definition private law can also be thought of as a regulatory instrument. Private law fits into this notion because it definitely has mechanisms for setting standards (codes and statutes), mechanisms for monitoring compliance with these standards (parties themselves act as monitors), and mechanisms for applying sanctions to those who deviate from the standards (courts).

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See A Ogus, Costs and Cautionary Tales: Economic Insights for the Law (Hart Publishing, Oxford and Portland 2006), 69. The functional notion of regulation has been advanced by Collins, Regulating Contracts. It has been further developed in Cafaggi, ‘The Making of European Private Law: Governance Design’ in Cafaggi and Muir Watt (eds), The Regulatory Function of European Private Law. See also L Gorywoda, Regulatory Functions of European Contract Law. A Ogus, Regulation: Legal Form and Economic Theory (Clarendon Press: The Clarendon Law Series, Oxford 2004). A distinctive feature of the economic approach is its focus on ex ante reasoning; it implies focusing on setting rules and policy for the future, rather than on deciding ex post how to correct things. Collins, Regulating Contracts.

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b) Fitting Private Law into the Modern Concept of Regulation

Thinking about private law as regulation involves conceptualizing it as regulatory law. Bodies of law typically identified as regulatory include mainly antitrust law, product and workplace safety laws, and securities law. One is usually less likely to describe central areas of private law, such as the general law of contracts, or even tort law, in terms of regulation. However, there is evidence that shows that it is plausible to think about private law as concerned with the regulation of commercial activity. This invites one to think about private law ‘instrumentally,’ i.e., as a tool that people can use to achieve ends or objectives outside private law itself. An important preliminary remark is in order. In evaluating the potential of private law as a regulatory tool, we need to attend not only to the rules and principles according to which civil liability is imposed, but also to the institutional structures through which those rules and principles are given practical effect. Thus, the role of the judiciaries is crucial in giving effect to regulatory rationales behind specific private law rules and principles. The classical – and most widely held – view treats private law as primarily a facilitative device.63 Facilitative law provides mechanisms for ensuring mutually desired outcomes.64 Accordingly, private law provides parties with background rules to assist them in maximizing joint surplus from an exchange. For example, contract law economizes on parties’ transaction costs by providing them, by default, with solutions they would have wanted to design for themselves. Since these solutions are already in place, they do not need to waste resources on designing them; they can direct their resources to productive ends, and therefore surplus is maximized. From the facilitative approach to private law it follows that the state’s role is to create a value neutral framework in which the only task for courts is to ensure that in case of dispute contract law is enforced. This perspective presupposes a discontinuity between the state action (public sphere) and state non-action (private sphere). The former consists of intervention and social engineering (directive function associated with market regulation); the latter consists of adjudicating disputes arising in the private sector (facilitative function).65 Under this perspective, the judicial role seems to be essentially 63 64

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Weinrib, The Idea of Private Law. N Garoupa and A Ogus, ‘A Strategic Interpretation of Legal Transplants’ (2006) 35 Journal of Legal Studies 339-363, 341. Under the label of ‘facilitative law’, Garoupa and Ogus mention ‘contracts, corporations, other forms of legal organizations, and dealings with property’. RB Seidman, ‘Contract Law, the Free Market, and State Intervention: A Jurisprudential Perspective’ (1973) 7 Journal of Economic Issues 553-575, 555.

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passive and the public interest, providing grounds for an intervention into the private sphere, is not generally represented in private law disputes.66 On the opposite side there is interventionist law. Interventionist law is made of tort and regulatory law, but also those aspects of contract, property, and corporate law that confer protection on parties assumed to be disadvantaged by processes of free bargaining, for example, consumers, employees, tenants, and (in some contexts) shareholders.67 The rationale behind regulatory law such as environmental and consumer protection was to enable the state to intervene in the activities of private actors in the market for the public benefit.68 Regulatory law aims to achieve substantive standards, such as, for example, emission limits in the area of environmental law, rather than just setting a framework of rules in which the parties to a legal interaction negotiate their own standard as in the case of ‘procedural law’ and ‘private facilitative law’.69 Thus, whereas regulatory law aims at achieving some pre-determined goal (e.g. reducing pollution, or the number of traffic accidents, preventing harassment or mobbing at workplace), facilitative law ‘simply offers a set of formalized arrangements with which individuals can ‘clothe’ their welfareseeking activities and relationships’.70 Neoclassical private law scholarship rejects the classical dichotomy between public and private but maintains the importance of the ‘private’ transaction as its substantive core. The notion that a court’s only set of choices consists of non-enforcement of a contract or enforcement according to its terms is likewise rejected. The neoclassical approaches acknowledge that courts necessarily supplement, interpret, and impose limits on private agreements in formulating and applying private law.71 Asserting the continuity of public and private spheres (in terms of functions) leads to the conclusion that courts not only facilitate the trade but also interfere with the terms on which trade occurs. From this perspective, there is a spectrum of regulatory devices, ranging from public to private – and private law can be treated as one of the regulatory instruments. This means that individual private action can transcend – in terms of its effects – a particular private law relationship. As such, it may have an element 66 67 68

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Ogus, Regulation: Legal Form and Economic Theory, 258. Garoupa and Ogus, ‘A Strategic Interpretation of Legal Transplants’ 341. B Lange, ‘Understanding Regulatory Law: Empirical vs. Systems – theoretical Approaches?’ (1998) 18 Oxford Journal of Legal Studies 449-471, 450. Ibid. A Ogus, Regulation: Legal Form and Economic Theory (2004). JM Feinman, ‘Contract after the Fall, Review’ (1987) 39 Stanford Law Review 15371554.

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of deterrence in relation to the particular defendant or to all persons who engage in similar activities to that defendant. To illustrate this point, let us analyze how contract law may influence market actors’ incentives. From a regulatory perspective, the objective of contract law is to compel the parties to internalize the costs of externalities into their transactions. Externalities may be incorporated in formulation of standards or in application of remedies.72 From the point of view of economic theory, such as notably rationalchoice approaches, contract law operates as social regulation (in the case of competition law, also as economic regulation). It shapes contractual practices by influencing the incentives available to market actors. In this sense, adopting a regulatory perspective means to look into the market actors’ incentives from an external point of view, i.e. outside of the relative contractual relationship, and to ask what is the rationale and effects of the particular regulation of contracts. For example, is making a gambling contract void an effective way of achieving the policy behind this prohibition? It could be argued that regulating gambling contracts is ineffective because, regardless of their unenforceability, they are concluded commonly.73 This perspective differs from the traditional approach. Both in law-making and law-interpreting the traditional approach is guided by an internal point of reference. It is mainly based on the idea of corrective justice74 and principle of compensation, and the ultimate normative point of reference is restoration of the status quo ante (i.e. before harm). It is because the traditional approach to contract law perceives this body of law as a value-neutral, facilitative set of rules that allocates rights and duties between the parties. Accordingly, contract law does not have any instrumental purposes. This approach does not treat contract law as an instrument for forward-looking change of market actors’ behavior. There are practical consequences in adopting either of these two approaches for reasoning patterns. For the traditional perspective, legal analysis proceeds from the bottom-up because it is focused on a relative contractual relationship which does not take into account externalities. On the contrary, for the regulatory perspective, the direction of analysis is top72 73

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L Gorywoda, Regulatory Functions of European Contract Law. H Gollins, Regulating Contract Law in C Parker, et al. (eds), Regulating Law (Oxford University Press 2004). The objective of contract law to protect one party against the other in order to avoid what is perceived as injustice is stressed by Martijn W Hesselink, ‘The Politics of European Contract Law: Who has an Interest in what Kind of Contract Law for Europe?’ in S Grundmann und J Stuyck (eds), An Academic Green Paper on European Contract Law.

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down. The regulatory perspective does not ask which contractual rule is consistent with the parties’ expectations, but what expectations they should be encouraged to have, assuming that they respond to the incentives that have their source in the legal regime.75 For an illustration of how the regulatory reasoning operates, let us examine externalities and the role of contractual liability. The traditional point of view focuses on the individual legal relationship and accordingly on the role of contractual liability as compensation. It does not take into account the possible effects of the contractual arrangement on third parties. The regulatory, i.e. external, perspective operates in a contrary manner: the objective of the law is to force the parties to internalize the costs of externalities into their transactions. As a consequence, contractual liability should be treated as a device for forcing actors to internalize the full cost of their actions, and thus for minimizing the social cost of private activities. The ultimate objective of the liability rules is to influence a change in the parties’ behavior by promoting, for example, an optimal level of precautions, in order to avoid waste of social resources for costly litigations. Reducing the number of cases litigated due to the optimal level of precautions incentivized by a particular liability rule may in turn shift resources to more efficient uses, thus decreasing the aggregate amount of misallocation of resources.76 It is possible to give at least three examples from the literature which applies this kind of reasoning. The first example comes from corporate law, the second from the field of precontractual liability and the third one is linked to the functions of consumer law. It is claimed that corporate law is regulatory, insofar as it provides incentives and disincentives to the major actors in the corporate enterprise (directors, officers, and significant shareholders) through the threat of liability.77 This reasoning is based on the premise that regulation may be understood as placing of restraints upon freedom in the market by increasing the costs of undesired activities. It follows that legal liability may be viewed as a price for such undesired activities. The role of liability rule is to compel corporate actors to take into account the external costs of their acts. It is also claimed that the law of contract formation has a regulatory role. From a regulatory point of view, promissory estoppel and related doctrines operate as regulations; they shape the bargaining process by influencing the negotiators’ incentives to make and to rely on preliminary communi75

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AW Katz, When Should an Offer Stick? The Economics of Promissory Estopped in Preliminary Negotiations (1996) 105 Yale Law Journal 1249-1309. L Gorywoda, Regulatory Functions of European Contract Law. MA Eisenberg, ‘Corporate Law and Social Norms’ (1999) 99 Columbia Law Review 1253-1292.

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cations. As a practical consequence of this assumption, lawmakers interested in maximizing social welfare are encouraged to take into account the fact that some rules do better than others at promoting efficient exchange. Therefore, they should engage in the cost-benefit analysis in order to choose an optimal rule.78 Under this analytical framework, consumer law also performs a regulatory role. From the regulatory standpoint, consumer law has two purposes. The first purpose is to insure the buyer against unexpected risks related to market exchanges. The second purpose is to provide incentives to the seller and the producer to invest more in safety and other quality dimensions, which are not easily observable ex ante (i.e. before the transaction), and to take risks for which he or she is the cheapest cost avoider.79 The use of private law as a regulatory instrument at the EU level is usually associated mainly with the bulk of consumer protection directives followed by the ECJ / CJEU case-law, both of them addressing market failures in businessto-consumer (B2C) relationships.80 In fact, consumer policy has been an area of noticeable EU regulatory activity. It has been pivotal in efforts to harmonize and coordinate European private law. Today, a veritable corpus of European consumer law exists, and Community-sponsored initiatives to take stock, and subsequently build upon, the consumer acquis are going on. In concluding this section, it needs to be recalled that, according to economic theory, the justification for regulation begins with the identification of a failure in the incentive structure of markets. Thus, the regulatory function of law is understood as its ability to address market failures. Ex post, remedial, market-based private law relies primarily upon the courts for its implementation.81 On the contrary, public regulation is ex ante, deterrent, command-and-control, and relies primarily upon administrative authorities for its monitoring and enforcement.82 Traditional thinking about private law and public law tend to emphasize the idea of ‘private law’ as a 78

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AW Katz, ‘When Should an Offer Stick? The Economics of Promissory Estoppel in Preliminary Negotiations’ (1996) 105 Yale Law Journal 1249-1309. K Lantermann and H-B Schäfer, ‘Jurisdiction and Choice of Law in Economic Perspective’ (2005) German Working Papers in Law and Economics Vol. 2005, No. 1. See, for example, S Grundmann et al. (eds), Party Autonomy and the Role of Information in the Internal Market, (Walter de Gruyter, Berlin, New York 2001). F Cafaggi and H Muir Watt, ‘Introduction’ in F Cafaggi and H Muir Watt (eds), The Regulatory Function of European Private Law Edward Elgar, Cheltenham 2009) pp. x-xxx, x-xi. See Ogus, Regulation: Legal Form and Economic Theory (On the distinction between private and public law as alternative tools of regulation see Collins, Regu-

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technical tool supporting and sustaining the voluntary processes of trade and commerce in a politically neutral way, in opposition to the idea of ‘public law’ as a policy-driven, dirigiste tool.83 However, in EU law the private / public divide is blurred: leaving aside the complexities of European public law, European private law deals with private law relationships in the policy driven and dirigiste mode traditionally associated with public law. In the EU setting, market failures should be interpreted extensively to encompass also general phenomena such as market confidence-building, traditionally viewed as more of a consequence than a failure in itself. Moreover, the specificity of the European level broadens the regulatory function of law to incorporate also market integration.

III. Judicial Cooperation in Matters of Market Regulation Having, in Part One, elaborated on the regulation of internal market means and identified the relevant policies, we now come to the European system of judicial cooperation in civil and commercial matters, its interplay with regulatory policies and especially its importance in ensuring the effectiveness of those policies. The policy goal of European integration has translated into a veritable European judicial system, which consists of both EU courts and Member State courts. Constitutional and resource constraints at the EU level have made of national courts the principal day-to-day enforcement mechanism of EU law. As the legal subject matter covered by EU law expands into more traditional areas, domestic judiciaries are even challenging the primacy of administrative agencies in that regard. The renewed focus on private enforcement, i.e. the mobilization of private actors to push forward regulatory claims, is further adding to that trend. This is attributable to resource constraints at the EU level as well as the subsidiarity principle. In doing so, they establish the meaning of EU law within their own jurisdictions. In this sense, domestic judiciaries are Eu-

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lating Contracts (H Collins, ‘Regulating Contract Law’ in C Parker, et al. (eds), Regulating Law Oxford University Press, Oxford 2004). See M Freedland, ‘Private Law, Regulation and Governance Design and the Personal Work Contract’ in F Cafaggi and H Muir Watt (eds), Making European Private Law: Governance Design Edward Elgar, Cheltenham 2008) pp. 227-234, 228-229.

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ropean actors not only because they are required to apply EU law, but also because their interpretations affect what the EU law is.84 The regulatory goal of fostering judicial cooperation in civil and commercial matters is to be achieved mainly through the instruments of private international law.85 If private international law is to be an instrument for fostering judicial cooperation, the EU regulatory agenda has to cope with the inherent limitations set by this field, notably by the rules on jurisdiction to adjudicate (and prescribe) and the rules on recognition and enforcement of judgments. Given that domestic courts have been getting increasingly involved in the application of regulatory laws in cases concerning cross-border economic misconduct,86 the first question to ask is whether the present jurisdictional system, centered around the Brussels I regime, is well-suited to deal with this recent development.

1. The Area of Freedom, Security and Justice In the EU, the objective of judicial cooperation in civil and commercial matters is to create and develop an Area of Freedom, Security and Justice in which the free movement of persons is guaranteed.87 The steps that have led to the creation of the Area date back to 1968, when the original six Member States agreed on common rules on jurisdiction and enforcement of judgments in civil and commercial matters (the Brussels Convention).88 Then in 1993, the Maastricht Treaty identified judicial cooperation in civil and 84

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M de S.-O.-l’E. Lasser, Judicial Transformations: The Rights Revolution in the Courts of Europe (Oxford University Press, Oxford 2009), 183. ‘Stockholm Programme’ (‘An Open and Secure Europe Serving and Protecting Citizens’) (2010 / C 115 / 01). See, for example, the U.S. perspective provided by HL Buxbaum, ‘Transnational Regulatory Litigation’ (2006) 46 Virginia Journal of International Law 251-317. See Recital (1) of Brussels I Regulation: ‘The Community has set itself the objective of maintaining and developing an area of freedom, security and justice, in which the free movement of persons is ensured. In order to establish progressively such an area, the Community should adopt, amongst other things, the measures relating to judicial cooperation in civil matters which are necessary for the sound operation of the internal market.’ For an overview of developments from the early days of the European Communities up to the mid-noughties, see N. Hatzimihail, ‘General Report: Transnational Civil Litigation Between European Integration and Global Aspirations’, in A Nuyts & N Watté, International Civil Litigation in Europe and Relations with Th ird States (Bruylant, 2005), 596-675, esp. 597-608.

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commercial matters as an area of common interest for EU Member States. The Treaty of Amsterdam went even further making judicial cooperation in civil and commercial matters a European Community policy linked to the free movement of persons (i.e. transfer from the third to the first pillar of the EU). After that, at the Tampere European Council in October 1999, EU leaders acknowledged three priorities for action in this field: (1) mutual recognition of judicial decisions, (2) better compensation for crime victims, and (3) increased convergence in the field of civil law. Due to the differences in the laws of civil procedure of the Member States the acceleration of the recognition and enforcement of judgments has been, as stated in the Conclusions of the Tampere European Council, necessary for proper functioning of the internal market. It has been expected that by simplifying the recognition in cross border cases within the EU the costs of enforcement will be reduced. However, the enforcement procedures still remain governed by the national law of the Member State of enforcement.89 The underlying judicial principle in the EU is that any citizen of a Member State should have access to the same judicial protection, regardless of which Member State his or her case is to be tried in. The Member States’ different rules and regulations can create an obstacle to the attainment of a single Community area of justice. The increase in cross-border relationships highlights the procedural differences that exist in the different legal systems of the Member States. These differences can end up hampering European citizens’ access to justice, lead to excessive procedural delays and in the end raise the cost of cross-border proceedings. Thus, the basic reason for regulating procedures in civil matters at the EU level is to guarantee the protection of the same rights in the different Member States as a necessary measure for the creation of an area in which there is effective freedom of movement for persons. It is expected that within the AFSJ individuals and businesses should be free to exercise their rights fully. According to the Commission, ‘[t]he European judicial area must allow citizens to assert their rights anywhere in the Union by facilitating their access to justice. It must equip economic operators with tools that enable them to benefit fully from the single market, especially at a time of economic crisis.’90 It means that the Area is a tool to enable market actors (consumers and businesses) to benefit from the internal market: to reap the full benefits

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See Communication from the Commission, ‘Delivering an Area of Freedom, Security and Justice for Europe’s Citizens: Action Plan Implementing the Stockholm Programme’, Brussels, 20.4.2010 COM(2010) 171. COM(2009) 262 final, p. 10.

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of the European judicial area, access to justice must be made easier, particularly in cross-border proceedings.91 In sum, the basic principle underlying judicial cooperation is mutual recognition as applied to decisions in civil and commercial matters. The principle of mutual recognition is the cornerstone of European integration in the field of justice.92 The final objective is that judicial decisions should be recognized and enforced in other Member States without any additional intermediate step. The importance of private international law in establishing the Area has been stressed by Basedow in the following words: ‘Since the Community’s choice-of-law legislation is meant, under Art. 61 EC, to contribute to the establishment of “an area of freedom, security and justice”, we may draw some inferences as to the concept of justice in the European Union. There is no legal basis for the harmonization or unification of substantive private law in Title IV. The area of justice is to be achieved by choice-of-law rules, i.e. by the designation of one and the same national law as being applicable to a transnational case regardless of the Member State where the case is pending. The unification of private international law does not remove differences in substantive private law. Some of these differences may impair the functioning of the internal market and give rise to the approximation of national laws under Arts. 94 and 95 EC. Where the functioning of the internal market is not affected by those differences, the European Treaty does not provide for harmonization for the sole sake of justice.’93

2. The Brussels I Regulation The Treaty of Rome provided the basic organizational scheme for the economic integration of the EU, but it neither provided a mechanism for the judicial resolution of private cross-border claims nor for the mutual recognition and enforcement of judgments of the various courts of the Member States.94 However, on the basis of Article 220(2) of the Treaty of Rome, Member States started a process of simplification of formalities governing

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Ibid, p. 13. Ibid, p. 10. J Basedow, ‘The Communitarisation of Private International Law – Introduction’ (2009) 73 Rabels Zeitschrift für ausländisches und internationales Privatrecht 455460, 457. Hatzimihail, ‘General Report,’ 598-600.

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the recognition and enforcement of judgments and arbitral awards.95 This process was ultimately realized by the 1968 Brussels Convention on jurisdiction and enforcement of judgments in civil and commercial matters, which, after several minor revisions was subsequently transformed into a Community instrument by Regulation 44 / 2001 (“Brussels I”).96

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See JM Lookofsky and K Hertz, Transnational Litigation and Commercial Arbitration: An Analysis of American, European, and International Law (Second edn Juris Publishing, Huntington, New York 2004). As to the acquis communautaire pertinent to judicial cooperation in civil and commercial matters, there are also other pieces of the legislative landscape which may be taken into account in the project. First, as far as the traditional individual redress is concerned, the following legislative measures are relevant: (1) Regulation (EC) 861 / 2007 establishing a European Small Claims Procedure, 11 July 2007; (2) Regulation (EC) 1896 / 2006 creating a European Order for Payment Procedure, 12 December 2006; (3) Regulation (EC) No 805 / 2004 of the European Parliament and of the Council of 21 April 2004 creating a European Enforcement Order for uncontested claims, 21 April 2004; (4) Council Directive 2002 / 8 / EC to Improve Access to Justice in Cross-border Disputes by Establishing Minimum Common Rules Relating to Legal Aid for such Disputes, 27 January 2003. Second, as to arbitration and mediation: (1) European Code of Conduct for Mediators. (2) Directive 2008 / 52 / EC on Mediation in Civil and Commercial Matters, 21 May 2008. There have also been different proposals concerning the consumer area: (1) Commission Recommendation 98 / 257 / EC on the Principles Applicable to the Bodies Responsible for Out-of-court Settlement of Consumer Disputes, 30 March 1998; (2) Commission Recommendation 2001 / 310 / EC on the Principles for Out-of-court Bodies Involved in the Consensual Resolution of Consumer Disputes, 4 April 2001. As to collective redress and actions for injunctions: (1) The Unfair Commercial Practices Directive, 11 May 2005; (2) Unfair Contract Terms Directive, 5 April 1993. Concerning actions for damages, there have been different approaches in Member States. EU initiatives on collective actions for damages: (1) European Commission, Benchmarks for Collective Redress; (2) Green Paper on Consumer Collective Redress, 27 November 2008. As to collective cross-border enforcement through injunctions: Directive 2009 / 22 / EC on injunctions for the protection of consumers’ interests, 23 April 2009. Concerning competition law: White Paper on Damages Actions for Breach of the EC antitrust rules 2 April 2008. Also relevant is the Commission Staff Working Document, Public Consultation: Towards a Coherent European Approach to Collective Redress SEC(2011) 173 final, Brussels 4.2.2011. As to administrative co-operation: Regulation 2006 / 2004 on cooperation between national authorities responsible for the enforcement of consumer protection laws, 27 October 2004; competition law network.

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a) Objectives and Principles of Brussels I Regulation

The main objective of the Regulation is to facilitate the judicial treatment of lawsuits and judgments among the Member States with a view of enabling the free movement of judgments within the internal market. The Regulation aims at easier and more uniform rules and faster and simpler procedures for civil cross-border litigation within the EU. It is based on the idea that difficulties in enforcing civil claims in other Member States provide market actors with disincentives for establishing cross-border relationships, thus hampering the operation of the internal market. The Regulation removes many differences between national laws on jurisdiction and recognition of judgments as well as differing procedural formalities that impede judicial cooperation within the internal market. The Regulation is based on the principle of mutual trust in the legal systems and judicial institutions of Member States, in the legality and correctness of judicial procedures taken, and decisions rendered, in other Member States. Mutual trust includes the expectation that each Member State is willing to strictly adhere to the rules set out by the Regulation.97 An additional purpose of the Regulation is to ground jurisdiction, and thereby the defendant’s obligations to submit to the competent court’s jurisdiction, on uniform and fair connecting factors.98 Defendant must defend themselves only at places to which the dispute is sufficiently related. For this reason the Regulation abolished a number of national provisions on jurisdiction which are regarded as exorbitant. Fairness considerations also motivate the specific protective rules of jurisdiction in the interest of certain classes of parties, assumed to be economically weaker, such as insured persons, employees and consumers who can only be sued in their forum. Another objective of the Regulation is to secure the principle of legal certainty with respect to jurisdiction and enforcement of judgments. It is governed by the principle of automatic recognition which can be refused for few reasons only. The Regulation also aims at avoidance of concurrent proceedings in different courts and differing judgments on the same matter.99

97 98 99

U Magnus and P Mankowski (eds), Brussels I Regulation, (Sellier, Munich 2007) 7. For a typology see Hatzimihail, ‘General Report,’ 632-642. More on the objectives of Brussels I Regulation see ibid. Recast Regulation has addressed the issue of concurrent proceedings, see L Gorywoda, ‘The New Design of the Brussels I Regulation: Choice of Court Agreements and Parallel Proceedings’, (2013) Columbia Journal of European Law F.

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To sum up, the Regulation is based on the principles of: (1) legal certainty;100 (2) party autonomy;101 (3) minimization of concurrent proceedings and irreconcilable judgments;102 and (4) mutual trust in the administration of justice.103

b) The Revision Process of the Brussels I Regulation

The Brussels I Regulation is considered to have been a highly successful legislative instrument, facilitating cross-border litigation through an efficient system of judicial cooperation based on comprehensive jurisdiction rules, coordination of parallel proceedings, and circulation of judgments. The system of judicial cooperation laid down in the Regulation has successfully adapted to the changing institutional environment (from intergovernmental cooperation to an instrument of European integration) and to new challenges of modern commercial life.104 The strong general satisfaction with the Regulation’s operation did not preclude its revision. Article 73 provided for its review after five years of operation, and the European Commission seized the opportunity to promote some quite far reaching changes to the Regulation. In the context of the review process, serious research work was commissioned.105 The Commission Green Paper identified the following areas for improvement: (a) the abolition of exequatur; (b) the operation of the Regulation in the international legal order; (c) choice of court (the law applicable to choice of court agreements, choice of court and lis pendens; (d) the operation of the rules concerning industrial property; (e) the application of the lis pendens and related actions rules of the Regulation; (f) provisional measures (which remain an area where the diversity in the national proce100 101 102 103 104

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Recital (11). Recital (14). Recital (15). Recitals (16) and (17). Green Paper on the review of Council Regulation (EC) No 44 / 2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters COM(2009) 175 final, Brussels 21.4.2009. See notably the Heidelberg ‘Report on the Application of the Brussels I Regulation in the Member States’ by Professors Burkhard Hess, Thomas Pfeiffer and Peter Schlosser (2007), available online at http: // ec.europa.eu / civiljustice / news / docs / study_application_brussels_1_en.pdf and the ULB-led ‘Study on Residual Jurisdiction’ with a General Report by Professor Arnaud Nuyts, available online at http: // ec.europa.eu / civiljustice / news / docs / study_residual_jurisdiction_en.pdf.

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dural laws of the MS makes the free circulation of such measures difficult); (g) the interface between the Regulation and arbitration (as arbitration falls outside the scope of the Regulation).106 It has been observed that the right to obtain compensation for damages following a breach of EU law is the same for all citizens of the EU, but the access to this right is not. The remedies and procedures differ from Member State to Member State as they are enshrined in the national legal system. The result is said to be a marked inequality between Member States in the level of protection of the right to damages.107 The Commission’s 2010 proposal included a reference to collective redress proceedings: Article 37(3) excluded from the abolition of exequatur, alongside defamation and privacy cases, ‘judgments given … in proceedings which concern the compensation of harm caused by unlawful business practices to a multitude of injured parties’ brought by a ‘state body’, ‘a non-profit making organisation whose main purpose and activity is to represent and defend the interests of groups of natural or legal persons, other than by, on a commercial basis, providing them with legal advice or representing them in court’, or a group of at least fifteen claimants. In 2012, the revision process was concluded with the adoption of Regulation 1215 / 2012, known for the time being as ‘Brussels I bis’.108 The changes were certainly not as dramatic as the original Commission proposal. They included, notably, the abolition of exequatur and certain changes regarding the recognition / enforcement process (the grounds for refusal of recognition and / or enforcement have remained unchanged); the strengthening of forum-selection clauses and a reform of the rules on lis pendens, including a limited right to stay proceedings in favor of third-country courts in specific and clearly unsatisfactory circumstances; the clarification of the arbitration exception of the Brussels Regulation (in the aftermath of the West Tankers judgment of the European Court of Justice). The Recast Regulation did not include the Proposal’s reference to collective redress.

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Proposal for the Regulation of the European Parliament and of the Council on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, COM(2010) 748 fi nal, Brussels 14.12.2010. Mario Monti, A New Strategy for the Single Market: At the Service of Europe’s Economy and Society. Report to the President of the European Commission, 9 May 2010, 102. OJ L 351 / 1, 20.12.2012.

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3. The EU Private Regulatory Law and its Impact on Judicial Cooperation in Civil and Commercial Matters The idea that the Member States of the EU need to cooperate in the field of civil and commercial matters has a long history.109 As the functionalist approach to European integration had envisaged, economic integration has inevitably led to cooperation in civil and commercial matters.110 With its focus on consumer and competition policies and the development of the internal market, the EU has taken the form of a ‘regulatory’ rather than a ‘welfare’ state: regulation – as opposed to income redistribution and discretionary macroeconomic management – has become the most important type of policy-making in the EU.111 Private law, whose important role in the constitution and governance of transnational processes is generally acknowledged,112 has become an important tool for the pursuance of regulatory objectives, transcending the formalism of a hard distinction between public and private law, as well as between domestic and international.113 From a European law perspective, private law has been an important factor contributing to the creation of the internal market; as such, it seems plausible to characterize European private law as a ‘goal-oriented’, regulatory instrument.114 From a private international law perspective, the sound 109

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See, among others, G Barrett, ‘Introduction’ in G Barrett (ed), Creating a European Judicial Space. Prospects for Improving Judicial Cooperation in Civil Matters in the European Union (Academy of European Law, Trier 2001) pp. 7-14, 7. Ibid. According to functionalists, cooperation in one area is likely to produce a spill-over effect of cooperation in other areas. For a classic exposition of the functional approach to European integration see E Haas, The Uniting of Europe: Political, Social and economic Forces, 1950–1957 (Stanford University Press, Stanford 1958). Majone (ed), Regulating Europe, 1. See also KA Armstrong, Regulation, Deregulation, Reregulation: The Paradoxes of EU Governance (Kogan Page, London 2000). N Jansen and R Michaels, ‘Private Law and the State: Comparative Perceptions and Historical Observations’ (2007) 71 Rabels Zeitschrift für ausländisches und internationales Privatrecht 345-397; R Michaels and N Jansen, ‘Private Law Beyond the State? Europeanization, Globalization, Privatization’ (2008) 54 American Journal of Comparative Law 843-890; N Hatzimihail, Pre-Classical Conflict of Laws (forthcoming, 2014). See O Odudu, ‘The Public / Private Distinction in EU Internal Market Law’ (2010) 46 Revue trimestrielle de droit europeen 826-841. See, for example, the European legislation on consumer protection which has often been linked to the creation of internal market by making an express link to Article 114 TFEU (ex Article 95 TEC).

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operation of the internal market has created a need for clear and predictable rules on jurisdiction in cross-border civil and commercial matters.115 Two observations trigger the discussions that follow. First, as the evidence shows, certain differences between national rules governing jurisdiction are likely to amount to barriers to cross-border trade; as such they are likely to hinder the proper functioning of the internal market.116 Various EU measures on cross-border civil litigation, including the rules on civil jurisdiction and the recognition and enforcement of judgments, have been developed to address this problem. Second, although the EU does not perform all of the functions of a modern state, it does extensively engage in a widespread economic and social regulation.117 This explains the importance of market regulation measures within the internal market program. But it is not clear how these two areas, i.e. judicial cooperation in civil and commercial matters, and regulatory private law, have been interacting with each other. Although they have been recently an object of an increased normative activity by the EU, it seems that the current design of EU rules on jurisdiction in civil and commercial matters does not reflect their interplay in a proper way. Taking stock of these two strands of developments, i.e. the intensification of the processes of judicial cooperation and the growth of new regulatory techniques to foster the goal of market integration, we must assess the extent to which Brussels I Regulation on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters118 – as one of the main measures of the EU law of civil procedure – is able to effectively and efficiently address cross-border civil and commercial litigation issues 115

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See the explanatory memorandum for the Proposal for a Council Regulation (EC) on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, COM(99) 348 final, 28.12.1999, where the value of legal certainty is emphasized (para. 1.1). Th is also explains the statement of the CJEU in C-281 / 02, Owusu v Jackson [2005] ECR I-1383, according to which ‘In fact it is not disputed that the Brussels Convention helps to ensure the smooth working of the internal market.’ See the various European Commission reports, including recent editions of the Internal Market Scoreboard, available at http: // ec.europa.eu / internal_mar ket / score / index_en.htm. G Majone, ‘Market Integration and Regulation: Europe after 1992’ (1992) 43 Metroeconomica 131-156; Egan, Constructing a European Market: Standards, Regulation, and Governance, 2. Council Regulation (EC) No 44 / 2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (OJ L 12 of 16 January 2001, p. 1).

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in selected fields of the internal market private law. The broader question that the project has adressed is the extent to which the private regulatory law of the internal market can be approached as a single phenomenon from the private international law and judicial cooperation perspective. It would appear that, despite the common occurrence of cross-fertilizations between European regulation and private law,119 as far as judicial cooperation is concerned, it is fair to say that the Brussels I Regulation does not provide satisfactory answers to the issue of balancing the private interests of the parties and the public interests related to the competitive dynamics of the European internal market.

a) Cross-Border Civil Litigation, Private Enforcement and the European Regulatory Space aa) Enforcement Rules and the Transformation of Private Law

Enforcement rules constitute a vital aspect of the transformation of European private law, triggered through the growth of the EU regulatory space. The emerging public policy dimension is highlighted through: (1) the introduction of mechanisms supporting effective access to justice; (2) the promotion of solutions where typical private law obligations (for example, the contractual or quasi-contractual duties of businesses with respect to consumers or employers with respect to employees) are enforced through criminal or administrative sanctions; (3) the transcendence of the individual relations paradigm (such as the relation between landlord and tenant) through the aggregation of rights (such as the emergence of trade unions which led to the development of collective labor agreements granting employees rights they could not have bargained individually). Two important and competing trends can also be observed: (1) public enforcement as a tool for the effective application of private law rules; and (2) private enforcement as a tool for the effective application of public law

119

See above. See also G Bellantuono, ‘The Limits of Contract Law in the Regulatory State’ (2010) 6 European Review of Contract Law 115-142.

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rules.120 Moreover, EU non-discrimination law121 imposes on private parties (employers, suppliers) obligations similar to the State’s obligations under public law. Furthermore, the right to bring legal action is also increasingly vested with private organizations (NGOs). Finally, collective enforcement is now under scrutiny at both the national and European levels.

bb) Public Regulation and Private Law Relationships

Public regulation may have an impact on private law relationships in at least three scenarios. First, public regulation may shape the content of contractual duties. Second, violation of standards of public regulation may constitute a tort. Third, public regulation may provide private parties with a direct claim. The availability of private enforcement implies that regulatory policies may be enforced through private litigation. However, there might be obstacles for a coordinated pursuit of pre-determined regulatory goals through private and public channels in cross-border cases, notably when the rules on jurisdiction and applicable law with regard to private enforcement prove different than those with regard to public enforcement. Traditionally, the conflicts norms on public regulation, as indeed the whole system of exercising public authority, has been premised on a strict principle of territoriality and on the identity between the grounds of prescriptive jurisdiction and those of jurisdiction exercised by the regulatory, as indeed any public, authority. On the contrary, in cross-border cases involving private enforcement the competent court (determined according to the common rules of civil jurisdiction) may well be different from the forum of the competent public regulatory authority, even as new questions are raised about applicable law. Such a result, of course, can be doubtful from the regulatory perspective as it has little or no relation to the policies underlying particular regulated sectors. The jurisdictional grounds invoked by public regulatory authorities are territoriality-oriented. For instance, in the field of financial services law, the 120

121

See the Commission White Paper of 2008 on claims for damages for violations of competition law; COM(2008) 165 final); most recently, the Proposal for a Directive of the European Parliament and Council on certain rules governing actions for damages under national law for infringements of the competition law provisions of the Member States and of the European Union, Strasbourg 11.6.2013, COM(2013) 404 final. Council Directive 2000 / 78 / EC of 27 November 2000 and Council Directive 2004 / 113 / EC of 13 December 2004.

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main connecting factors are the place of offering or admission to trading of securities, registered seat or seat of administration of an issuer or domicile or habitual residence of an investor. In contrast to this public policy territorialism,122 in the realm of private enforcement, the main principle (though, with important exceptions) is private autonomy, as a result of the application of general rules of private international law. This can easily lead to derogations from the principle of territoriality (according to Article 23 Brussels I Regulation, private parties can choose the competent court)123 and thereby enable parties to escape the enforcement system of the interested Member State. Absent party choice of forum, it is nonetheless debatable whether the jurisdictional rules of Brussels I Regulation are in harmony, in those instances where private enforcement and public regulatory policies interact, with the policies underlying particular regulated sectors. For example, can such connecting factors as ‘place of domicile of defendant’, ‘place of delivery / performance’, ‘place of loss’ or ‘habitual residence of consumer’ be deemed coherent with ‘regulatory’ connecting factors, i.e. the ones underlying regulatory policies behind, for example, the mechanisms of investor claims related to prospectus liability? In sum, our point is that goals underlying private enforcement and the particular strategies of private litigants – which lead to respective jurisdictional choices – may not always overlap with those underlying public enforcement. The issue of coordination between the two modes of enforcement – at least for jurisdictional purposes in cross-border cases in the EU – should be addressed.

cc) Civil Procedure and Its Purposes

What is the purpose of civil procedure in a contemporary society? It is possible to identify two stances on this question. According to the first position, the main and the most important purpose of private law and civil procedure is to provide litigants with compensation or, in more general, with relief. Deterrence (prevention) and behavior modification might occur as a desirable side effect, but they are no more than that. According to the second position, private law and civil procedure may have deterrence and behavior modification as their main objectives or outcomes. There is an issue with both positions. The most widely held view is that procedural law has mainly 122 123

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Term used by N Hatzimihail, Preclassical Conflict of Laws (on fi le with editors). For an important ECJ decision concerning financial institutions and jurisdictional issues see Case C-144 / 10, Berliner Verkehrsbetriebe (BVG), Anstalt des öffentlichen Rechts v JPMorgan Chase Bank NA, Frankfurt Branch, 12 May 2011.

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a serving function with respect to substantive private law: it has to provide litigants with remedies through which they can seek compensation. Civil court is a forum where litigants can appear to have their rights arising from substantive private law established and enforced. What this perspective has not adequately taken into account is that judiciaries who settle disputes on a regular basis do more than just determine and protect the individual rights of private parties. Judicial decisions also have a law-making value and have an impact which is likely to transcend the individual case. The twin functions of civil litigation are reflected in the distinction between the granting of damages and the granting of injunctions. The Brussels I Regulation does not distinguish between actions for damages and actions for injunctions. However, injunctive actions are subject to specific regulation, governed by Directive 2009 / 22. Moreover, the Commission in the White Paper has formulated a set of recommendations concerning only damages only and not injunctions. The question that arises is whether the connecting factors in the case of actions for damages and actions for injunctions should be the same or whether these two types of actions should be differentiated. Differentiation can be justified by the different regulatory functions served by these two types of actions.

dd) The Public / Private Divide and the Regulatory Function of European Civil Litigation

The significance of market regulation is that it undermines the notion that there is a clearcut division between the two categories of law. Thus, the first difficulty that regulatory private law raises in respect of Brussels I Regulation is the distinction between public and private (‘civil and commercial’) claims. This distinction seems to be problematic in practice. As has been pointed out above, private law has become a hybrid model of reasoning that seeks to combine both the rights-oriented reasoning of private law with the policy-oriented and instrumental character of regulation.124 The concepts of private law and regulation differ in national legal traditions, and between different schools of thought within those traditions. Scholars tend to define regulation as a distinct method of governance, both narrower than law, in that only some parts of law may be described as regulation, yet also broader than law, because some regulatory measures 124

H Collins, ‘Governance Implications for the European Union of the Changing Character of Private Law’ in F Cafaggi and H Muir Watt (eds), Making European Private Law: Governance Design Edward Elgar, Cheltenham 2008) pp. 269-286, 276.

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may not formally qualify as laws in a normative sense, as in some instances of self-regulation.125 This contrast in modes of reasoning between private law and regulation has diminished considerably in recent decades in most national private law systems. The policy-oriented thinking of regulation has affected the way private law disputes are treated in the courts. Judges are expected to be able to justify their conclusions about individual rights under private law on the ground that not only do they meet the traditional test of consistency with the scheme of rights articulated in the code or the statute, but also the result promotes socially desirable policy goals. As a result, reasoning in private law has become a hybrid, which seeks to reconcile the aim of vindicating established individual rights and at the same time to promote social and economic policies. In this respect the changing character of private law needs to be emphasized. It has been suggested that the nature of national private law is undergoing a multiple transformation. Of particular relevance in the context of a multi-level private law system126 are three significant alterations or adaptations to the changing legal and social environment. The first concerns the regulatory character of private law. This change in the operations and reasoning processes of private law has created considerable adaptation problems for the legal institutions in national private law systems, not least for the courts, owing to the need to become interdisciplinary in orientation. The second change in the character of private law concerns the growth of inter-textuality in private law reasoning.127 Legal discourses of national private law systems have become more complex, with invocations of a broader range of principles, including public law and human rights dimensions,128 125 126

127

128

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C Parker et al. (eds), Regulating Law, (Oxford University Press, Oxford 2004). Th is refers to the fact that any legal instrument concerning private law created at the EU level of governance has to function within the broad structures of the present multi level system of governance. On these developments in private law reasoning see H Collins, Regulating Contracts (Oxford, 1999). Originally, private law was considered to be immune from the effect of fundamental rights, the function of which was limited to being individual defenses against the vigilant eye of the State. Th is traditional view, however, has recently been put under pressure as a result of fundamental rights increasingly becoming relevant for private law. With respect to contract law see, among others, O Cherednychenko, Fundamental Rights, Contract Law and the Protection of the Weaker Party: a Comparative Analysis of the Constitutionalisation of Contract Law, with Emphasis on Risky Financial Transactions (Sellier. European Law Publishers, München 2007); G Brüggemeier, A Colombi Ciacchi and G Comandé (eds), Fundamental Rights and Private Law in the European Union (Cambridge University Press 2010).

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and a range of supranational legal orders. A third change in private law reasoning concerns the evolution of transnational sectoral private law regimes. At both national and transnational level, different business sectors have developed their own, almost independent, rules and regulatory systems for governing commercial transaction. Any European private law system needs to address the issue of how to accommodate or interact with these private regulatory systems.129 The Brussels I Regulation does not define the term ‘civil and commercial matters’. However, most countries, especially those adhering to the continental legal tradition, recognize the distinction between public and private law in their domestic legal system, and ‘civil and commercial matters’ are included within the field of private law.130 The Brussels I Regulation frequently uses legal concepts employed by Member States in their civil, commercial and procedural legislation. As these legal concepts build on national terminology, there is a risk of their being understood in different terms from one Member State to another. It is clear that most of the Brussels I Regulation rules, in the same way as most other EU law rules, need to be interpreted autonomously. As such, these rules are not to be understood as based on national legal concepts but rather as having their own meaning, binding on all the Member State. Such autonomous interpretation of the Regulation’s words and underlying concepts is necessary to ensure that these rules are fully effective and predictable.131 This is true also with regard to the delimitation of the scope of application of the Brussels I Regulation, as defined in Article 1. The concept of ‘civil and commercial matters’, referred to in Article 1(1), is to be treated as autonomous and independent of the corresponding national legal concepts. The interpretation of ‘civil and commercial matters’ has triggered several ECJ / CJEU judgments. As the main rule, the ECJ / CJEU held that a dispute, or a judgment in a given dispute, between a public authority and a person governed by private law, in which 129

130 131

On these three developments see Collins, ‘Governance Implications for the European Union of the Changing Character of Private Law’ in 270-271; L Niglia (ed.), Pluralism and European Private Law (Hart, 2013). Magnus and Mankowski (eds), Brussels I Regulation, 51. See Case C-440 / 97, Judgment of the Court of 28 September 1999, GIE Groupe Concorde and Othes v The Master of the vessel “Suhadiwarno Panjan” and Others, para. 11: ‘As far as possible, the Court of Justice gives the terms used in the Brussels Convention an autonomous interpretation, rather than by reference to national law, so as to ensure that the Convention is fully effective, having regard to the objectives of Article 220 of the EC Treaty (now Article 293 EC), in the implementation of which the Convention was adopted (Case C-125 / 92 Mulox IBC v Geels [1993] ECR I-4075, paragraph 10).’

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the public authority acts in the exercise of its powers, is excluded from the scope of application of the Regulation.132 The delimitation between, on the one hand, civil and commercial matters and, on the other hand, public law matters, is not always manifest and clear.133

ee) Public and Private Enforcement of EU Law

The enforcement of modern regulatory regimes rests on two pillars, public and private, each raising its own series of problems concerning judicial cooperation and cross-border civil litigation. Public enforcement is any enforcement of substantive legal rules that is carried out in the general public interest, usually by public bodies, without going through the courts (or at least by going through specialized administrative courts or tribunals). In contrast, private enforcement refers to private persons taking action, through civil courts, so as to vindicate their rights under private law. It can be said that whereas the function of public enforcement is deterrence, the function of private enforcement is compensation. However, enforcement activity of either type may contain elements of both types. Moreover, the two paradigms may overlap, leading to ‘mixed’ enforcement mechanisms. A public body may take civil action to enforce a private contract, thus providing a signal about its policy on the need for general public observance of particular substantive rules. A contrasting example would involve a private person undertaking a private action so as to recover damages for breach of tort law: by so doing, the individual would be seen as enforcing public standards on the need for the society to observe duties of care towards others, since the individual action may have an ele-

132

133

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See, for example, Case 29-76, Judgment of the Court of 14 October 1976, LTU Lufttransportunternehmen GmbH & Co. KG v Eurocontrol (charges unilaterally fi xed and imposed by a public authority) and Case 814 / 79, Judgment of the Court of 16 December 1980, Netherlands State v Reinhold Rüffer (collision of water motor vessels). See, for example, A Briggs and P Rees, Civil Jurisdiction and Judgments (5th edn Informa, 2009). Cf also the following ECJ caselaw: Case C-172 / 91, Judgment of the Court of 21 April 1993, Volker Sonntag v Hans Waidmann, Elisabeth Waidmann and Stefan Waidmann, Case C-271 / 00, Judgment of the Court of 14 November 2002, Gemeente Steenbergen v Luc Baten, Case C-433 / 01, Judgment of the Court (Fift h Chamber) of 15 January 2004, Freistaat Bayern v Jan Blijdenstein and C-266 / 01, Judgment of the Court (Fift h Chamber) of 15 May 2003, Préservatrice foncière TIARD SA v Staat der Nederlanden.

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ment of deterrence in relation to the particular defendant or to all persons who engage in similar activities to that defendant. Public regulatory enforcement involves proceedings before regulatory authorities: such proceedings may come prior or after the action at bar; the permission of the competent authority might be required, or the authority might be called to intervene ex post in case a violation is alleged. Public enforcement raises first and foremost questions of jurisdiction (both adjudicative and prescriptive jurisdiction, even jurisdiction to execute). Moreover, the increased interconnection of national regulatory authorities – as well as the proliferation of regulatory regimes – creates procedural issues involving access to evidence and mutual assistance. The road ahead suggests that the sophistication and complexity of public enforcement regimes will increase: for example, Regulation 1 / 2003 has created a more complex system of public enforcement of antitrust law, by transferring power from the European Commission to the national competition authorities (NCAs). At the same time, the number of EU Member States has almost doubled to include countries with no prior exposure to the very idea of competition law or securities regulation, thus creating problems of institutional design and regulatory implementation. In turn, private regulatory enforcement involves the pursuit by individuals of civil claims based on regulatory law. Such claims may be actions in tort, by consumers or harmed business competitors. They will often arise in the context of a contractual dispute, with a contracting party alleging the invalidity of the contract (either in a declaratory action, or by way of exception to the other party’s action) and possibly claiming damages. Private enforcement might be a matter for arbitral courts and ADR institutions as well as state courts. Be that as it may, and despite a relative long tradition of academic treatment, today private regulatory enforcement is a rather rare phenomenon in Europe, where the Commission estimates the amount of compensation foregone by potential claimants, in antitrust cases alone, in the billions of euros.134 The contrary situation prevails in the US, where, a few years ago, the ratio of private antitrust actions to public proceedings was estimated at ten to one (and growing).135 In an effort to remedy the situation and facilitate private enforcement, the European Commission published a few years ago a White Paper on Damages actions for breach of the EC antitrust rules (hereinafter: ‘the White Paper’),136 whose purpose 134

135

136

See European Commission, Impact Assessment Report (accompanying the White Paper on damages), at 2.2, SEC (2008) 404 (2 April 2008). M Hellner, ‘Private International Enforcement of Competition Law’ (2002) 4 Yearbook of Private International Law 257-301, 259. COM(2008) 165 final (2 April 2008).

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was to identify potential hurdles within the domestic context of Member States and to prescribe minimum standards. There was on the contrary little explicit reference on the cross-border dimension and its peculiar need. The same hold true with regard to the recent (mid-2013) Directive Proposal on civil actions for damages on competition violations. Be that as it may, the White Paper (and the Directive proposal) constitutes a landmark document for private regulatory enforcement, whose long-term will be felt beyond mere competition law. From the point of view of regulatory law and policy, private enforcement complements public regulation. Public enforcement agencies often have limited resources. Private actions may compensate for under-enforcement by public agencies. They may also pressure action by public regulators. Private individuals may often be in a better position to detect contraventions and private enforcement reflects the different intensities of consumer preferences.137 The proposal, early in the Brussels I recast process, to extend substantially the scope of the jurisdictional rules in the Brussels I Regulation so as to make them applicable in cases where the defendant is domiciled outside the EU would have triggered a significant reform. At present, it is the national law of the courts where an action is raised which applies (with only limited exceptions to this rule). However, the Commission’s report has found that as national laws regarding jurisdiction vary substantially across member states, this has resulted in unequal access to justice for EU citizens, and can be a particular hindrance for victims seeking to raise damages claims following competition law infringements. The Green Paper suggests eradicating this inequality by extending the application of the rules on jurisdiction to defendants domiciled in non-EU states. The inclusion of proposals to extend the jurisdiction rules to defendants domiciled outside the EU would have made available an EU forum for litigants to pursue private damages actions against non-EU domiciled defendants. It could affect the respective roles of public and private enforcement in extra-community relations. Enforcement of market regulation measures may occur either through public action or private litigation. However, jurisdiction and applicable law are not the same for public and private enforcement. Public regulatory authorities apply lex fori (i.e. a unilateral approach) and the main conflicts principle is territoriality. Regulatory function of private law implies that public and private enforcement is complementary to each other. In other words, legislature in a given jurisdiction designates certain roles to public and private enforcement in the pursuit of given regulatory goals. This ne137

I Ramsay, Consumer Law and Policy. Text and Materials on Regulating Consumer Markets (2nd ed Hart Publishing, Oxford 2007), 264.

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cessitates the question about the coordination of the rules on jurisdiction on public and private enforcement. If we conclude that such coordination is needed, the question that arises is how to design the relevant connecting factors with respect to jurisdictional issues. Appropriate institutional design calls for responses that ensure consistency among different strategies, maximize complementarities and minimize redundancy.

b) Extraterritoriality of Regulatory Regimes

The confluence of private law and public regulation reflects in the extraterritorial expansion of jurisdiction in cases involving violations of regulatory law. An emphasis on ‘effects’ doctrine has to considerable extent replaced the public-law tradition of strict territoriality. Motivated by concerns of procedural economy and effective enforcement of regulatory policies, recent case law seems to enable a further expansion of territorial jurisdiction, and even to allow for consolidation of multiparty cases with global implications.

aa) Extraterritoriality of Claims based on Securities Regulation Measures

Securities regimes, insofar as they apply extraterritorially, aim to protect markets and investors within the regulating state’s boundaries from the effects of private activities or practices abroad. Much of the discussion about the ‘extraterritoriality’ of securities regulation tends to overlook the territorial connections between the regulating state and the firms involved (e.g. in seeking a cross listing, or in carrying on investment business). Indeed, much securities regulation affecting foreign firms does not actually involve direct extraterritorial jurisdiction over foreign conduct. These requirements are better regarded as domestic measures with extraterritorial implications. Difficulties may arise, though, when companies are subjected to overlapping or conflicting requirements by different states. Direct extraterritorial jurisdiction has, however, been controversial in the context of securities fraud litigation, especially where the territorial connections between the actors, the conduct and the regulating state appear slight. Courts apply a number of doctrines, including the conduct and effects test, in determining how far to extend jurisdiction in securities class actions involving transnational securities fraud.138 An important issue is the problem of the 138

SJ Choi and LJ Silberman, ‘Transnational Litigation and Global Securities ClassAction Lawsuits’ (2009) 2009 Wisconsin Law Review 465-506.

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‘f-cubed’ (foreign-cubed) securities case. The f-cubed case presents the situation where claims in state A are brought by purchasers who reside outside state A and who purchased their securities from non-state A issuers on exchanges outside state A. Among the issues raised by these cases are: (1) In what circumstances should a court exercise jurisdiction over a multinational securities action? (2) Which country’s securities laws should apply in such a case? (3) Will court decisions or settlements of these actions be recognized in other jurisdictions?

bb) Extraterritoriality of Competition Law Claims

In the Provimi case,139 which arose out of a worldwide vitamin cartel operating in the 1990s and which was prosecuted by the Commission in the EU and US Department of Justice in the US with record fines being imposed, German claimants brought claims in England in respect of losses suffered in Germany in sales from German companies as the implementation of the cartels in England had been a factor in the success of the cartels throughout Europe. The High Court asserted broad jurisdiction, ruling that once a jurisdictional ground existed over one of the English claimants in the action, it would also permit claims in the same action by foreign claimants, thereby avoiding separate claims in multiple jurisdictions. This ruling by the English High Court permitted damages claims against two of the participants in the Vitamins cartel, Roche and Aventis, not only by English companies, but also a German company. Jurisdiction was decided on the basis of the Brussels I Regulation. According to Article 5(3) of the Regulation, the defendant in tort cases can be sued in the courts ‘of the place where the harmful event occurred.’ The High Court held that for claimants domiciled in England, the place where the harmful event occurred was England. It then added that in a situation where among the claimants filing a case before an English court there are claimants domiciled in England and claimants not domiciled in England, it will have the jurisdiction to hear all the claims, including those brought by claimants out of England on the grounds that those claims are sufficiently connected to those claims falling under the jurisdiction of the English courts by virtue of the fact that the defendant is domiciled in England, under Article 6(1) of the Regulation.

139

Provimi Ltd. v. Aventis Animal Nutrition Ltd et al., 2003 E.W.H.C. 961 (Comm. May 6, 2003).

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c) Development of Collective Redress Proceedings

Traditional litigation primarily rests on individual claimants and defendants.140 This traditional model has been incorporated into the Brussels I Regulation. This model has been challenged by the growth of the collective redress proceedings because the rationale for promoting collective redress proceedings is to enable litigation that would not be in the courts at all if individual actions were required. Brussels I Regulation contains no rule dealing with the cross-border implications of collective redress proceedings. However, private international law measures have a crucial role to play if collective redress proceedings are to be promoted in Europe. Thus, the question is how the European and domestic policy favoring collective redress actions can be implemented under the existing provisions for jurisdiction and recognition and enforcement of foreign judgments under the Brussels I Regulation. Recent years have seen major developments in Europe in the field of consumer collective redress. At the European level, a series of reviews has been launched by the European Commission in the areas of consumer and competition policies to see whether there is a need to introduce some form of pan-European collective redress mechanism with regard to cross-border disputes. At the same time, many Member States have introduced their own procedures for collective action through national legislation. At present, there is no common collective action for damages in Europe. A 2007 study carried out by the Center for Consumer Law at the University of Leuven found that more than half of EU Member States did not have any institution of collective redress at all. Within the Member States which adopted collective redress instruments, the mechanisms vary considerably. For example, while in some countries, such as the UK, a collective action may be initiated by individual consumers, in other jurisdictions, such as France, a collective action can be brought only by accredited bodies, such as consumer associations or government agencies. Moreover, some countries, such as UK have adopted ‘opt-in’ mechanisms (i.e. suits can only be brought by or on behalf of consumers who have expressed their positive intention to participate in the action), while other countries, such as Portugal, have adopted ‘opt-out’ systems (in which the proceedings can be brought on behalf of a class of individuals unless the consumer opts140

See Muir Watt, ‘Brussels I and Aggregate Litigation or the Case for Redesigning the Common Judicial Area in Order to Respond to Changing Dynamics, Functions and Structures in Contemporary Adjudication and Litigation’. B Hess, ‘Crossborder Collective Litigation and the Regulation Brussels I’ (2010) 30 Praxis des Internationalen Privat- und Verfahrensrechts 116-121.

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out of this procedure).141 At the same time, the Alsthom case – where the French Constitutional Court dealt with a challenge to the constitutionality of a French statute authorizing trade unions to bring suit on behalf of individual members – may serve as a warning against the legal complications of an opt-out system: for example, a class judgment rendered against an absent or unrepresented member of the plaintiff class in an opt-out class action might trigger the public policy exception on the ground of a lack of ‘fair trial and hearing’. The growth of class action litigation is a response to important problems of the contemporary society. These problems stem from various developments which, among others, include: (1) the expansion of mass production; (2) the diversification of enterprise ownership; (3) increasing role of multinational corporations; (4) frequent incidence of cross-border environmental damage; (5) cross-border character of competition policy infringements; (6) the spread of new investment instruments; and (7) common use of innovative marketing practices.142 Due to the nature of infringement in these cases, the interests affected are diffuse. When litigation arises over one of these subjects, there is a choice between: (1) multiplicity of individual suits, and (2) aggregation of similar individual actions. Class action is about protecting diffuse interests. This method of protection has an efficiency rationale (though, other rationales are conceivable as well). From an economic standpoint, class action is an instrument of requiring businesses to internalize the costs of failures in performance of contracts to ensure that private costs equal social costs. This can be achieved in two ways: either (1) through the judicial economy of a single damage decree for multiple claims, or (2) through a class settlement achieved between the representative plaintiff and the defendant.143 141

142

143

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More on class action models see Hensler et al. (eds), The Globalization of Class Actions, (On cross-border aspects see P Rott, ‘Cross-Border Collective Damage Actions in the EU’ in F Cafaggi and H-W Micklitz (eds), New Frontiers of Consumer Protection: The Interplay Between Private and Public Enforcement Intersentia, Antwerp 2009) pp. 379-398. On different rationales for class action see the judgment of the Supreme Court of Canada in Western Canadian Shopping Centres Inc v Dutton [2001] 2 SCR 534 McLachlin CJ, cited by Ramsay in Ramsay, Consumer Law and Policy. Text and Materials on Regulating Consumer Markets, 255. Ibid. Ramsay, citing Coase and Wright, makes a point that class action reduces transaction costs; see RH Coase, ‘The Problem of Social Cost’ (1960) 3 Journal of Law and Economics 1-44; GA Wright, ‘The Cost-Internalization Case for Class Actions’ (1969) 21 Stanford Law Review 383-419. Class action also overcomes the collective action problem identified by Olson; see M Olson, The Logic of Collective

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Class action is a US development. Its development has been conditioned by the special features of the US institutional framework. These features are absent in the EU. If class action is to be transplanted in the EU, the following features of the US institutional framework need to be taken into account: (1) the absence of limitations on damages for pain and suffering in personal injury cases; (2) the significant role of punitive damages (including treble damages in competition law cases); (3) the role of juries; (4) the absence of fee shifting (i.e. the loser pays); (5) the absence of a universal health care scheme (but see recent developments) and workers compensation.144 In general, there are three types of class actions: (1) the private initiative model (US); (2) the consumer organization claim model where consumer organizations have standing to apply to courts for an injunction or prohibition order (Germany, Greece, Spain, France, Italy, Portugal); the administrative authority model where regulatory authorities have the power to sue for damage on behalf of consumers.145 The idea of collective litigation is not entirely new to European cross border litigation. According to Article 6(1) Brussels I Regulation several connected lawsuits can be brought to the courts of a Member State where one of the defendants is domiciled (but there is no corresponding rule for the situation where there are several plaintiffs and one defendant). When related actions are pending in different Member States, the court which was seized later may stay its proceedings. By providing for a discretionary stay, Article 28 Brussels I Regulation also includes situations of complex litigation.146 Several cases concerning the Brussels I Regulation have dealt with some features of collective litigation: Henkel,147 Lechouritou,148 and Mines de Potasse d’Alsace.149 Although forcing policy change through private enforcement is a US phenomenon, also the EU has introduced certain litigation structures to encourage private enforcement of internal market laws, as illustrated by the development of the concept of ‘direct effect’. As a result, the EU legal system empowers citizens and business to stand up for their rights through litigation before national courts. On this account, private enforcement is a

144

145 146 147 148 149

Action: Public Goods and the Theory of Groups (Harvard University Press, Cambridge, Massachusetts 1965). Ramsay, Consumer Law and Policy. Text and Materials on Regulating Consumer Markets, 256. Ibid. Hess, ‘Cross-border Collective Litigation and the Regulation Brussels I’, 116. C-167 / 00. C-292 / 05. C-21 / 76.

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key tool to contribute towards reduction of the compliance deficit and to ensure the effectiveness of the internal market rules. The new developments are twofold. On the one hand, the European Commission has emphasized the need to adopt new procedures in order to promote private enforcement of competition and consumer laws. On the other hand, some Member States have already provided for mechanisms of aggregate litigation (collective redress). In the EU setting, these developments raise the demand for free movement of collective judgments. Against this background, the question that arises is whether the existing heads of jurisdiction under Brussels I Regulation and its recognition and enforcement provisions are well-suited to accommodate the arrival of large groups of claimants before the MS courts. Given the rise of collective redress, traditional objectives of the common judicial area should be reexamined. As a result, conflicting national conceptions as to the legitimacy and forms of collective redress need to be solved by careful jurisdictional design. The following Articles of Brussels I Regulation should be addressed: Article 2; Article 5(1); Article 5(3); Article 6; Article 22(2); Article 22(5); Article 23; Article 27.

aa) Specific Cross-border Problems in the Practical Application of the Jurisdiction Rules of Brussels I Regulation

The existing mechanisms to compensate a group of victims harmed by illegal business practices vary widely throughout the EU. In fact, every national system of compensatory redress is unique. Given the fact that the EU internal market consists of 27 – and soon 28 – Member States each with their respective legal system, cross-border collective redress proceedings seem inevitable in the European setting. These divergences are likely to result in private international law problems. However, private international law measures have a crucial role to play if the collective redress proceedings are to be promoted in Europe. Thus the question is how the European and domestic policy favoring collective redress actions can be implemented under the existing provisions for jurisdiction and recognition and enforcement of foreign judgments under the Brussels I Regulation. What are the rules of Brussels I Regulation that could be relevant for allocating jurisdiction in cross-border collective actions? The relevant rules of Brussels I Regulation are discussed below. The Brussels I Regulation contains no rule dealing with the cross-border implications of the collective redress proceedings. In fact, the Regulation has incorporated the traditional model of civil litigation, which primar-

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ily rests on individual claimants and defendants.150 This model has been challenged by the growth of the collective redress proceedings because the rationale for promoting collective redress proceedings is to make possible litigation that would not be in the courts at all if individual actions were required. The major disadvantage of bringing a collective redress action on the basis of Article 2 arises from the fact that a foreign plaintiff would have to follow the defendant to the Member State of his domicile. It is likely to be a disincentive for the prospective members of the plaintiff ’s class. The problem is that a foreign class action could involve higher costs and risks for the local members of the plaintiff ’s class than collective redress litigation before the courts at their home state. The special jurisdiction rules of Brussels I Regulation are designed to give a plaintiff an alternative forum to that of the general ground of jurisdiction where he may sue a defendant. Article 5(1) allocates jurisdiction in contractual matters. Interpretation of ‘matters relating to contracts’ is according to the ECJ to be interpreted independently from national concepts.151 Its rationale is that there should be a particularly close connecting factor between a dispute and the court which may be called upon to hear it. The assumption is that there will be a close connection where, ‘in matters relating to a contract’, the claim is brought ‘in the courts for the place of performance of the obligation in question’. It has been noted that, for example, small (or medium-sized) businesses that are parties to contracts forming a parallel network of similar types of restrictive agreements may well bring a group action under Article 5(1) seeking a declaration that their contracts (or a contractual clause in their contracts) are in conflict with Article 101 TFEU and thus void. However, such businesses may face more difficulties in establishing jurisdiction under Article 5(1) of the Brussels I Regulation in cases where the group action seeks, for example, nullity of the parallel network of similar types of restrictive agreements and antitrust damages. For example, the House of Lords has interpreted the Court of Justice ruling in Kalfelis152 as defining claims under the contract head and the tort head to be mutually exclusive.153 In other words, jurisdiction over an action based on tort and contract could not be 150

151 152 153

See Muir Watt, ‘Brussels I and Aggregate Litigation or the Case for Redesigning the Common Judicial Area in Order to Respond to Changing Dynamics, Functions and Structures in Contemporary Adjudication and Litigation’. Hess, ‘Cross-border Collective Litigation and the Regulation Brussels I’. Case 34 / 82 Peters v. ZNAV, [1983] ECR 987, para. 9. Case 189 / 97. Agnew v Länsförsäkringsbolagens [2000] UKHL 7; [2001] 1 AC 223 (HL).

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exclusively allocated under the contract head or the tort head.154 This might allow plaintiffs some degree of forum shopping. Article 5(3) confers special jurisdiction ‘in matters relating to tort, delict or quasi-delict on the courts for the place where the harmful event occurred or may occur’. Article 5(3) would be a difficult head of jurisdiction for collective redress actions as there is a territorial limitation on jurisdiction and the Member State’s court, whose jurisdiction is based on a local act of breach, will have jurisdiction only in respect of acts committed within the territory of that state. There is some support for this in Shevill. In this case the Court of Justice, in the context of defamation, imposed a territorial limitation on jurisdiction based on damage in the forum, so that there was no jurisdiction in relation to damage suffered in another Member State. If the reasoning of the Shevill case was followed in connection with cross-border collective redress proceedings, in which the defendant’s conduct caused damage to plaintiffs in several Member States, then all members of the plaintiff class would be able to centralize their collective claim only before the courts of the defendant’s domicile.155 However, in such cases members of a foreign class may well be reluctant to initiate their class action at the place of the defendant’s domicile. According to Article 5(5), ‘a person domiciled in a Member State may, in another Member State, be sued as regards a dispute arising out of the operations of a branch, agency or other establishment, in the courts for the place in which the branch, agency or other establishment is situated’. This seems to be another basis for jurisdiction in collective redress proceedings brought on behalf of consumers. Although the subsidiary may be covered by Article 5(5) in cases where it acts as if it were a branch, the Court of Justice has held that the grantee of an exclusive sales concession who is subject neither to the control nor to the direction of the grantor cannot be regarded as being within the head of Article 5(5).156 A better solution would be provided if commercial and economic realities were to be taken into account by the court when allocating jurisdiction in collective redress proceedings under Article 5(5) of Brussels I. This could be of relevance in competition cases, where the subsidiary and parent company can be regarded as part of the same economic unit under the EU concept of ‘undertaking’. EU competition law denies the narrow legalistic approach of whether a subsidiary can bind a parent contractually and adopts the notion of the ‘single economic unit’. In other words, the end result of adopting the ‘single economic unit’ notion 154

155 156

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M Danov, ‘The Brussels I Regulation: Cross-Border Collective Redress Proceedings and Judgments’ (2010) 6 Journal of Private International Law 359-393, 366-367. Ibid. Case 14 / 76 De Bloos v Bouyer [1976] ECR 1497.

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is making a foreign parent subject to jurisdiction by virtue of Article 5(5). Although, it is true that the doctrine of ‘undertaking’ for the purposes of Articles 101 and 102 TFEU is different from the concepts of ‘legal entity’ or ‘persons’ which must be used when establishing jurisdiction under Brussels I, one may still argue that the economic reality of the relationship between parent and subsidiary should prevail when establishing jurisdiction in private antitrust claims brought under Article 5(5).157 Jurisdiction over one defendant on the basis of its domicile may be extended to other defendants on the basis of Article 6(1) Brussels I Regulation for reasons of procedural efficiency. It is important to note that Article 6 applies to multiple defendants and not to multiple claimants. A new special jurisdiction rule is to be enacted in the Brussels model establishing jurisdiction for multiple claimants. The purpose of Article 6 is to concentrate several claims in one forum. For Article 6(1) to apply, the various claims brought by the same plaintiff against different ‘defendants’ must be so closely connected ‘that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings’. In order to determine whether the case is one in which there is a risk of conflicting decisions, the decisions in question should be given ‘in the context of the same situation of law and facts.’158 Since the Roche v. Primus case, it is however questionable whether the close connection requirement of Article 6(1) would still be easily satisfied. Primus brought a claim of European patent infringement against Roche Netherlands BV and eight Roche entities established in different States where alleged infringements also took place. Primus claimed that the infringements were coordinated by Roche Netherlands BV and initiated procedures in the Netherlands on the basis of Article 2 and against the other Roche infringers on the basis of Article 6(1), claiming that there exists such a connection that it is expedient to determine the actions together in order to avoid the risk of irreconcilable judgments resulting from separate proceedings. The ECJ ruled that since the case involved a number of defendants domiciled in different States in respect of acts committed in their respective territory, any given decision would not arise in the context of the same factual situation. With respect to consumer contracts, it is doubtful whether the request for a binding declaration concerning a settlement agreement for the benefit of consumers, but concluded by consumer’s associations instead of by consumers themselves, would fall under the definition of ‘consumer contract’ 157 158

Ibid. C-539 / 03 Roche Nederland BV and Others v. Frederick Primus, [2006] ECR I-6535, para. 26.

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as stipulated in Article 15 Brussels I Regulation. It is a logical consequence of the ECJ’s settled case law that ‘a legal person which acts as assignee of the rights of a private final consumer, without itself being party to a contract between a professional and a private individual, cannot be regarded as a consumer’159 within the meaning of the Brussels I Regulation and this also applies in respect of a consumer protection organization which brings actions as an association on behalf of consumers.160 Parallel actions are likely to arise in the European context as collective redress proceedings in respect of the damages suffered by the consumers (or small businesses) may be brought in several Member States. The fact that the Brussels I Regulation has no specific provision to deal with the problem of parallel collective redress proceedings with cross-border elements suggests that Articles 27 and 28 would also be applicable to these cases. However, Brussels I Regulation is not well suited to deal with parallel collective redress actions. Article 27 (lis pendens) will be of no use in the context of parallel collective redress proceedings as the ‘same parties’ requirement contained therein will not be easily satisfied in collective redress scenarios. In turn, Article 28 concerns situations where related actions are pending in the courts of different Member States. The court second seised may, as a matter of discretion, stay its proceedings. In other words, Article 28 is designed to deal with those situations that do not fall within the strict limits of Article 27. In particular, Article 28 contains no requirement about the same cause of action or the same parties in the two proceedings and if the collective redress actions are related, then this provision may be of relevance. Article 28 dealing with related actions is an important provision to coordinate parallel collective redress procedures pending in courts of different Member States. The provision allows the court last seized to stay proceedings in favor of the court first seized. ECJ decided in Ship “Tatry” that the concept of ‘related actions’ should be given an independent and broad interpretation and should cover all cases where there is a risk of conflicting decisions, even if the judgments can be separately enforced and their legal consequences are not mutually exclusive. Forum non conveniens is also not possible in the EU as declining jurisdiction in favor of another ‘more appropriate’ forum within or outside the EU territory is not allowed.161

159 160

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C-89 / 91 Shearson Lehman Hutton, [1993] ECR I-139, para. 24. C-167 / 00 Verein für Konsumenteninformation v. Karl Heinz Henkel, [2002] ECR I-1811, para. 32. C-281 / 02 Owusu v. Jackson, [2005] ECR I-1383.

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bb) Special Rules on Collective Redress to Ensure Effective Enforcement of EU Law

It might be argued that the EU rules on international civil litigation need several amendments in order to most effectively deal with cross-border collective redress actions. The allocation of jurisdiction in cross-border collective redress cases should be regulated at European level, ideally within the framework of the Brussels I regime by incorporating a jurisdiction rule specifically dealing with this matter. The possible options for an appropriate jurisdictional ground include:162 (1) the place where the settlement was concluded; (2) place where the majority or the greater part of the interested parties is located (though, it would be difficult to determine); (3) the place where the event leading to the mass damage (either contractual or non-contractual) took place (similar to Article 5(3) Brussels I); (4) the place where the damage occurred or the place where the ‘greater part’ of the damage occurred;163 (5) the home forum of the alleged responsible party; and (6) the forum with a close or the closest connection. At the same time, it would appear that the effective management of collective redress might require a venture deeper into civil procedure territory. Comparative civil procedure can offer us some ideas worth examining. In the United States, jurisdictional conflicts in collective actions are dealt with by measures ensuring coordination between potentially competent courts, rather than simply allowing parallel litigation to go through. Reference should be made of the multidistrict litigation procedure which is a federal procedure that allows the transfer of all civil cases of a similar type throughout the state to one single federal court.164 When civil actions involving one or more common questions of fact are pending in different districts, such actions may be transferred to any district for coordinated or consolidated pre-trial proceedings. Such a forced joinder of complex cases with connections in several fora on the basis of intra-judicial consultation is foreign to Europe but can be suggested as an alternative to the lis pendens rule. The lack of a federal trial-level, general-jurisdiction judiciary in the EU complicates things. At the same time, the institutions and underlying policies behind judicial cooperation in civil and commercial matters have helped establish mechanisms of cooperation and communication between

162

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On the basis of Hélène van Lith, 2010 WODC, Ministerie van Justitie. The Dutch Collective Settlements Act and Private International Law. But see Case 21 / 76 Bier v. Mines de potasse d’Alsace, [1976] ECR 1735. 28 U.S. Code § 1407.

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Member State judiciaries; further steps could certainly be made to allow for consolidation and judicial management of collective actions.

IV. Conclusion This introductory paper was aimed at providing a conceptual background, and some food for thought, for the research undertaken in this project. We hope to have illustrated that judicial cooperation, just like European private law, has a concrete – if often undefined –regulatory impact. Moreover, that there is a mismatch between the rules – and policies – regulating the internal market, as they stand at present and are being developed and the European rules on allocating and managing jurisdiction over civil and commercial cases. The Brussels I recast might have achieved other objectives of the European judicial area but did not do much to bridge this gap. The experts’ contributions in the main body of the book have, we believe, have the doctrinal exploration and normative discussion much further. The diversity in the perspectives of the jurists involved in the project – common lawyers, civilians and even mixed-jurisdiction lawyers, academics, judges and practioners, private international lawyers, civil proceduralists, private law theorists and competition lawyers – is also reflected in the approaches adopted and the normative recommendations made. For example, should there be no change in the European jurisdictional system, with regard to collective redress, should the Brussels I Regulation simply be amended, should there be sector-specific treatment or should there be a separate instrument dealing with cross-border collective redress? It would appear that the majority’s preference would be on a separate instrument, especially after the completion of the Brussels I recast. This might well be the preference in parts of Brussels, and possibly some Member States. In responding to these questions, we must compare the goals of European private international law to those embraced by collective redress litigation strategies. Private international law rules tend to aspire to predictability and uniformity of result (which is referred to as ‘conflicts justice’).165 Achieving these goals requires either a restriction of the available fora (through limitations on judicial jurisdiction) or limitations on the freedom of courts to apply local law. At the EU level, the following principles 165

Kegel in P Hay et al., ‘Confl ict of Laws as a Technique for Legal Integration’ in M Cappelletti, et al. (eds), Integration Through Law: Europe and the American Federal Experience vol 1. Methods, Tools and Institutions. Book 2. Political Organs, Integration Techniques and Judicial Process Walter de Gruyter, Berlin - New York 1986) pp. 161-258, 190.

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that should guide EU initiatives in the field of collective redress have been identified: (1) proportionality between the harm caused to consumers and the economic impact on businesses; (2) deterrence; (3) discouraging unmeritorious claims; (4) promoting out of-of-court settlements; (5) fairly distributing the proceeds among claimants and their representatives.166 To what extent do those goals are compatible with the regulatory policies underlying the collective litigation mechanisms, and to what extent they are in line with the rationales behind the Brussels I Regulation? The discussion about the European approach to cross-border collective redress also brings to light the importance of a broader dilemma, namely that of the appropriate balance between public and private enforcement in Europe, and the normative criteria according to which it should be set. We have reached a moment when EU policy makers need to take decisions on this point. The implications of different decisions are likely to have major consequences for the resources and necessary mechanisms as well as for the level of activity of state and private bodies, as illustrated by the contrasting institutional architectures of the US and of the traditional European models. It is a matter of fundamental importance for a legal system to decide what balance between public and private enforcement it seeks to achieve. What kind of activities should lead to enforcement by individuals and which to enforcement by the state? In the US, private litigation is used as an important mechanism for the enforcement of public law standards. Thus, the US legal system provides private individuals with various incentives167 to seek out and take action to rectify breaches of law, and in so doing to act often with a strong function of public enforcements (including the intermediaries acting as ‘private attorneys general’). But the US system is not the EU system. Not only is European politics, society and indeed the legal culture different, but the balance between public and private enforcement is different even between the various Member States. The question that arises is what policy and which particular mechanisms should be introduced in the EU for collective redress. The discussion launched in this book will be long and, it is hoped, a fruitful one.

166

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Commissioner Meglena Kuneva, ‘Healthy Markets Need Effective Redress’, Concluding speech at the ‘Conference on Collective Redress’ in Lisbon, 10 November 2007. Such as the rules on contingency fees, cost-shift ing, discovery and damages.

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Collective Redress and the Jurisdictional Model of the Brussels I Regulation Burkhard Hess 1. Introduction Does the jurisdictional model of the Brussels I Regulation sufficiently address collective redress? Finding the appropriate answer to this question is not an easy task. The difficulties start with the notion and concept of collective redress. At present, there is no coherent approach to the very heterogeneous forms of collective remedies in Europe where Member States are developing different forms of collective redress in their respective legal systems. Thus, the 2011 consultation of the EU Commission on collective redress in EU member states1 adopted a broad approach. Accordingly, it describes collective redress as a mechanism that may accomplish the cessation or prevention of unlawful business practices which affect a multitude of claimants or the compensation of harm caused by such practices. This “umbrella definition” includes group litigation, model case-litigation, actions brought by ombudsmen or consumer organizations, collective settlements based on opt out mechanisms, skimming-off actions and injunctions against unlawful business practices. Recently, the delineation between insolvency claims and collective redress has also become an issue.2 The examples demonstrate the broad scope of collective redress, which also offers a multitude of heads of jurisdiction available to the litigants. Usually, the Member States do not introduce specific heads of jurisdiction for collective litigation. In most of the cases, general jurisdiction is available at the corporate defendant’s seat, and actions based on contractual or tortious liability may be brought in the specific heads of jurisdiction for contracts or tort. The German Capital Market Model Case Act of 2005 which specifically provides for exclusive jurisdiction at the seat of the issuer who disseminated misleading information (section 32b ZPO)3 seems to be exceptional. 1

2 3

Document of 4 February 2011, available at: http: // ec.europa.eu / justice / news / con sulting_public / 0054 / sec_2011_173_en.pdf. See infra at 4. Section 32b Code of Civil Procedure reads as follows: “(1) For complaints by which:

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A similar situation is found in the European law of civil procedure: the Brussels I Regulation is guided by the “leitmotiv” of two-party-proceedings. Litigation is generally regarded as taking place between one specific plaintiff and one specific defendant. Especially Article 27 JR which concerns pendency and Articles 32 and 34 nos 3 JR which address res judicata and conflicting judgments, are based on this concept. Nonetheless, the idea of collective redress is not entirely new to European cross border litigation. Article 6 no 1 JR explicitly states that several connected lawsuits can be brought to the courts of a Member State where one of the defendants is domiciled. When related actions are pending in different Member States, the court which was seized later may stay its proceedings. By providing for a discretionary stay, Article 28 JR also includes situations of complex litigation. Several cases concerning the Judgments Regulation have dealt with collective redress. The most prominent case was VKI ./. Henkel.4 In this case, an Austrian consumer association sought an injunction against a German businessman. Another example is the Lechouritou case,5 where approximately 1000 Greek victims of war atrocities committed during WW II sued the German government for compensation. The famous Mines de Potasse d’Alsace case involved damages caused to dozens of Dutch farmers by the pollution of the river Rhine.6 Recent examples of cross-border collective litigation include cartel damage claims7 and securities litigation. Cross border collective litigation related to product liability and related mass torts (as

4

5

6

7

1. The compensation of damages caused by false or misleading public capital market disclosures, or caused by the failure to make such disclosures, or 2. A claim to performance under a contract based on an offer pursuant to the Securities Purchase and Takeover Act (Wertpapiererwerbs- und Übernahmegesetz) is being asserted, that court shall have exclusive jurisdiction that is located at the registered seat of the issuer concerned, of the offeror of other capital investments, or of the targeted company. Th is shall not apply where the said registered seat is situate abroad”. ECJ, 1.10.2002, case C-167 / 00, Verein für Konsumenteninformation ./. Karl Heinz Henkel, ECR 2002 I-8111. ECJ, 15.2.2007, case C-292 / 05, Lechouritou ./. Bundesrepublik Deutschland, ECR 2007 I-01519. ECJ, 30.11.1976, case 21 / 76, Bier ./. Mines de Potasse d’Alsace, ECR 1976, 1735, 17511756. The interplay between the Brussels I Regulation and cross-border litigation in cartel damage claims was demonstrated by the Austrian OGH, 14.2.2012, case 5 Ob 39 / 11p, Wirtschaft und Wettbewerb 2012, 1251; The German Landgericht Dortmund has recently made a reference for a preliminary ruling in the case C-352 / 13,

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the Cost Concordia incident) have not yet been litigated in the European civil courts. In the following paper, I would like to ask whether the jurisdictional regime of the Brussels I Regulation is sufficiently suited for collective litigation. The first part of the paper addresses the perspective of multiple claimants. The second part deals with the perspective of the defendants and the third part shall address the specific situation of the approval of settlements by the civil courts of the Member States.

2. Multiple Claimants As a matter of principle, the jurisdictional regime of the Brussels I Regulation is defendant oriented. General jurisdiction is available at the defendant’s seat (Article 2 and 60), the specific heads of jurisdiction are considered as exception from the general rule and interpreted narrowly.8 Yet, in crossborder litigation, the jurisdiction at the (corporate) defendant’s seat can turn out detrimental for the plaintiff, as it offers a kind of psychological advantage to the defendant. In cases involving high amounts of damages, there might be an underlying consideration of the court of protecting an important taxpayer domiciled within the jurisdiction etc. Accordingly, the litigation strategy of claimants might prefer the specific heads of jurisdiction of Articles 5 and 6 of the JR providing for a forum actoris. Yet, the recourse to the specific heads of jurisdiction is not an easy task in the case of collective litigation. In this constellation, plaintiffs often bundle the individual claims in order to bring them collectively. The bundling usually operates by an assignment of the individual claims to the lead plaintiff or to a consumer organisation. As a matter of principle, the assignment of a claim does not change the jurisdiction of the court. Accordingly, jurisdiction is determined according to the jurisdiction clauses of the individual contracts (Article 23 JR), the specific place of performance (Article 5 no 1 JR) and the place of the harm sustained (Article 5 no 3 JR).

8

CDC Hydrogen Peroxide, concerning mainly the application of Articles 5 no 3 and 6 no 1 of the Brussels I Regulation. However, at least with regard to the interpretation of Article 6 no 1, the recent case-law of the ECJ seems to demonstrate the opposite trend, broadening the scope of the provision considerably in: ECJ, 11.10.2007, case C-98 / 06, Freeport plc ./. Olle Arnoldsson, ECR 2007 I-08319; ECJ, 01.12.2011, case C-145 / 10, Eva-Maria Painer / Standard VerlagsGmbH et al., nyr; ECJ, 11.4.2013, case C-645 / 11, Land Berlin / Ellen Mirjam Sapir et al., nyr.

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Thus, the individual nature of the specific heads of jurisdiction still prevails in the case of bundling. I.e., in the case of a Europe-wide product liability case, the victims of a toxic drug can sue the producer of the defective drug at the place where the harmful event occurred, usually at their domicile. According to the ECJ case-law, jurisdiction based on Article 5 no 3 JR is available in the Member State where the drug was produced (place of conduct) and in all Member States where the individual plaintiffs are domiciled, but only for the individual damage sustained in this Member State.9 As the bundling of the individual claims does not entail a specific head of jurisdiction, the claimants must bring the collective claim at the producer’s seat (or the seat of the pertinent plant) as jurisdiction. Jurisdiction at the place where the harm occurred is determined individually and does not permit the bringing of a collective lawsuit. A further impediment to the bundling of collective claims is found in the case-law of the ECJ. In Verein für Konsumenteninformation v Karl Heinz Henkel,10 the Austrian consumer association VKI brought an action against a German trader Henkel who was alleged to use terms and conditions in his contractual dealing with Austrian consumers that were considered to be contrary to the Unfair Contract Terms Directive as implemented in Austria. The main proceeding in Henkel was a preventive action pursuing an injunction brought for the public interest. However, VKI relied its claim on Articles 15 and 16 JR, which provide for protective jurisdiction for consumers in contractual matters. Yet, the ECJ held that there was no contractual relationship not because there were no contracts between the trader and consumers represented by VKI, but because VKI itself was not a real contractual party.11 In addition, the Court decided that the heads of protective jurisdiction only apply to the individual claimants, not to the assignees or to a consumer organisation. As a result, the plaintiff-friendly heads of jurisdiction are not available for collective litigation. As a result, it must be stated that the individualised heads of jurisdiction of the Brussels I Regulation are disadvantageous for bundled claims. European law does not provide for general jurisdiction based on doing busi9

10

11

ECJ, 7.3.1995, case C-68 / 93 Fiona Shevill and Others, ECR 1995-I 415, paras 20 and 21, 33; ECJ, 10.25.2011, joint cases C-509 / 09 and 161 / 10, eData Advertising ./. x and Olivier Martinez, Robert Martinez . / . MGN Limited, annotated by Hess, Der Schutz der Privatsphäre im Europäischen Zivilverfahrensrecht, Juristenzeitung 2012, 89, 90 ss. Case C-167 / 00 Verein für Konsumenteninformation v Karl Heinz Henkel [2002] ECR I-8111. Ibid, paras 38 and 39.

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ness, which permits the filing of large lawsuits in several courts. At present, collective forum shopping is largely excluded under the Regulation.

3. Multiple Defendants The situation is different with regard to multiple defendants. In this constellation, Article 6 no 1 JR has become one of the most important heads of jurisdiction. Although the scope of this head of jurisdiction is still disputed, it is more and more often applied in mass tort litigation against multiple defendants, especially in cases of securities litigation, patent infringements and cartel damage claims. This article permits a centralisation of collective litigation by bundling parallel lawsuits against several defendants domiciled in different EU Member States. According to this provision, several co-defendants can be sued at the domicile or seat of one co-defendant (‘the anchor defendant’). It presupposes a close connection between the causes of action. Such a factual or legal connection is easy to argue in product liability and cartel claims. Hence, if several enterprises with headquarters in different Member States are sued for the same cause of action, the plaintiff may freely select among the courts of the different Member States.12 Accordingly, this head of jurisdiction opens up the gateway for forum shopping in different courts and judicial systems of EU Member States. Recently, the ECJ rectified its former case-law13 and held that the close connection between the parallel claims does not presuppose that the claims are based on an identical legal basis.14 The operation of Article 6 no 1 JR can be demonstrated by a case presently pending at the District Court Dortmund.15 In this case, six corporations are sued for their involvement in a Hydrogen-Peroxide cartel. The EU12

13

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15

This concept is expressly endorsed by Article 6 (3)(b) Regulation Rome II.[4] Under this provision, several defendants can be sued in the court of a Member State where one defendant is domiciled if the market in that Member State is directly and substantially affected by the anti-competitive behaviour of all defendants. The common anti-competitive behaviour constitutes the connecting link among the co-defendants. It seems to be predictable that Article 6 no 1 JR will be interpreted systematically by reference to Article 6 (3) of the Rome II Convention. ECJ, 7.13.2006, case C-539 / 03, Roche Nederland BV u.a. ./. F. Primus, M. Goldenberg, ECR 2006 I-6535. ECJ, 1.12.2011, case C-145 / 10, Eva-Maria Painer ./. Standard VerlagsGmbH et al., available at http: // curia.europa.eu, para 84; ECJ, 11.4.2013, case C-645 / 11, Land Berlin / Ellen Mirjam Sapir and others, available at http: // curia.europa.eu, paras 44, 47. Case number 13 O 22 / 09 Kart., see also footnote 7.

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Commission sanctioned by fines amounting to several hundred millions Euro. In Dortmund, Cartel Damage Claims, a Belgian company, brought a lawsuit for damages sustained by 32 companies which had bought Hydrogen-Peroxide from the members of the cartel. The claims had been assigned to CDC, jurisdiction is based on Article 6 no 1 JR as the anchor defendant, a German corporation, is domiciled in Essen. However, as the co-defendants operated the cartel in several EU-Member States, jurisdiction under Article 6 no 1 JR was equally available in the Netherlands, Finland, Spain and Belgium. As the defendants strongly oppose to the application of Article 6 JR and deny any relatedness among the claims, the case was referred to the ECJ on June 26th, 2013.16

4. Collective Settlements A much discussed issue of cross-border litigation relates to settlements. In this area of law, Member States recently enacted national legislation which does not entirely fit with the structure of the Brussels I Regulation. One example is the Dutch Act on the Collective Settlement of Mass Claims (WCAM).17 This Act permits an out-of-court settlement of mass claims (i.e., product liability, environmental damages or securities litigation) between the responsible corporation and the victims who sustained damages. According to the Act, the victims may form, under Dutch law, a foundation which will represent all victims. The foundation negotiates a settlement with the corporation which is subsequently declared binding by the Amsterdam Court of Appeal. Normally, the settlement ends with the establishment of a fund (claims facility) which shall compensate all affected class members. The decision of the court entails preclusive effects: the settlement binds all represented members of the affected group unless they declare, to the court, their intent to opt out. The preclusive effect presupposes, however, that the foundation represents the class adequately and that the potential members of the class were duly notified about the settlement.18

16 17

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Case number C-352 / 13. Wet collectieve afwikkeling masseschadens of July 27, 2005. The original objective of the Act was the settlement of domestic disputes. However, since 2008, it has been applied to transnational cases, especially with regard to American class action litigation, see generally, van Lith, The Dutch Collective Settlement Act and Private International Law, 2011. The Service Regulation is usually not applied.

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In November 2010, the Amsterdam Court of Appeal approved the socalled Converium Settlement.19 In this case, the Swiss Insurance Company Converium and a Dutch Converium Settlement Foundation had settled a securities case. The Foundation had been established in order to represent almost 12.000 shareholders of the Swiss company who had bought shares on Swiss stock exchanges in 2001.20 In 2002, several corrections of prior announcements of the company entailed a downgrade of its credit rating by Standard & Poor’s resulting in a massive drop of the share value. The settlement should compensate the non-U.S. shareholders of the company.21 Most of the shareholders were Swiss nationals or citizens of EU Member States. Only approximately 200 shareholders were domiciled in the Netherlands. The court, however, based its jurisdiction on Article 6 no 1 of the Brussels I Regulation, because the 200 Dutch shareholders were considered as the defendants in the case. However, the procedural position of these persons was unclear: As they sought a payment from the Swiss Corporation they had to be qualified as plaintiffs. Furthermore, even if the Amsterdam Court was correct in basing its jurisdiction on Article 6 no 1, this article could not be applied to consumers who are protected (as defendants) by Articles 15 and 16 providing for exclusive jurisdiction at their domicile.22 In the Converium case the additional question arose whether the preclusive effect of the court decision could be extended to other EU Member States under the Brussels I Regulation.23 The Amsterdam court concluded that the preclusive effect must be recognized under Articles 32 and 33 of the 19

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Amsterdam Court of Appeal, November 12, 2010, Case no. 200.070.039 / 01, See George, Entry at the Blog: Confl ict of Laws of December 14, 2010, recently also Perreau Saussine, Quelle place pour les class actions dans le règlement Bruxelles I?, Semaine Juridique 2011, 992, Tzankova & van Lith, Class Actions and Class Settlements Going Global: The Netherlands, in: Fairgrieve & Lein (ed), Extraterritoriality and Collective Redress (2012), paras. 4.37 et seq. Between January 2002 and September 2004, Converium had made several announcements which led people to believe that the company had deliberately underestimated the insurance risks when floating its reinsurance unit. The existing reserve deficiency forced Converium to announce that it would take a charge of between $ 400 and $ 500 million to increase its reserve. Parallel litigation in New York ended with a settlement of the claims of the American investors. Recently, the Bundesgerichtshof (III ZR / 2009) refused the recognition of a scheme of arrangement under Articles 32 and 35 of the Regulation Brussels I, because the arrangement should apply to consumers. The application of these instruments to non-contentious litigation seems doubtful. See Perreau Saussine, Semaine Juridique 2011, 992, 993-4.

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Regulation.24 This conclusion presupposes, first, that the settlement can be qualified as a decision and not as a settlement in the sense of Article 57JR.25 However, the recognition of any preclusive effect of the judgment presupposes that the prerequisites of Article 34 and 35 of the Regulation are met. In this respect, a recent judgment of the German Supreme Federal Civil Court (BGH) clarifies the situation.26 The BGH had to decide on the recognition of a scheme of arrangement of the High Court of London. In this case, a German consumer had bought a life insurance from an English corporation, which had been sold by its German subsidiary. After 2000 the corporation got financial difficulties and applied for a scheme of arrangement under section 425 of the English Companies Act 1985. According to this provision, a company may restructure its debts with a defined majority of its creditors. The scheme is negotiated outside the courtroom, but formally approved by the court. It becomes binding for all the creditors of the company. Therefore, English law provides for a powerful instrument for the settling of a multitude of claims outside of formal insolvency proceedings. In the German case, the consumer claimed the payment of the whole sum from the defendant who relied on the scheme. Thus, the question arose whether the decision of the High Court had to be recognised under Articles 32 ss of the Brussels Regulation. The BGH held that the Insolvency Regulation was not applicable and that recognition could be sought under the JR. However, the Court referred to Article 35 JR and denied recognition. According to the judgment, Articles 8 and 12 of the Regulation barred the recognition, as the German party had to be considered as a consumer and as the defendant in the proceedings at the High Court in London. The court held that the English corporation had initiated the proceedings in London and qualified it as the plaintiff. Thus, the German consumer could rely on 24

25

26

The Amsterdam Court based its jurisdiction on Articles 5 no 1 and 6 no 1 of the Judgments Regulation (see para. 2.8 of the judgment). According to the court, jurisdiction based on the contract was available because the settlement was qualified as a contract to be enforced in the Netherlands. With regard to Article 6 no 1, the court came to the conclusion that the anchor defendants were the Dutch shareholders. However, both arguments seem to be contestable: Article 5 no 1 JR does not apply to a settlement reached in the course of court proceedings, but to the underlying claim (which was based upon tort law). Jurisdiction under Article 6 no 1 JR was not available as the anchor defendants were not the Dutch shareholders but only the Swiss Converium Corporation (being the debtor). Different opinion Tzankova & van Lith, Class Actions and Class Settlements Going Global: The Netherlands, in: Fairgrieve & Lein (ed), Extra-territoriality and Collective Redress (2012), paras. 4.37 et seq. BGH, 2.15.2012, Zeitschrift für Wirtschaftsrecht 2012, 740.

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Article 12 JR and was not obliged to litigate (or to settle) in London. As this argument equally applied to the Converium case (and similar constellations), the recognition of the Dutch settlements seems to be excluded with regard to protected persons, especially consumers, holders of insurances and employees. Nevertheless, the current legal situation regarding large settlements under the Brussels I Regulation seems to be unsatisfactory.

5. Conclusion: The Need for a Coherent Instrument on Cross-Border Collective Redress in the European Union As a result it must be stated that the jurisdictional regime of the Brussels I Regulation is mainly designed for litigation among individual parties and does not sufficiently address the needs of collective redress. A better coordination of cross border collective litigation in Europe seems to be necessary. However, the EU Commission was well advised when it excluded collective litigation from the recast of the Brussels I Regulation. The better solution would be a specific European instrument aimed at the coordination of the competing national systems at the EU level. Such coordination should, however, mainly focus on cross-border situations. It seems advisable to align this separate instrument to the Brussels I Regulation. Therefore, it should address general issues as jurisdiction, the coordination of parallel claims, the recognition of preclusive effects as well as specific issues of collective litigation such as standing (of qualified entities), information of (represented) parties, the binding force of settlements, safeguards against abusive litigation (of both parties). Furthermore, the new instrument could also address issues of private international law and complement the Rome Regulations.27 Against this backdrop, the recent initiative of the EU-Commission for a Recommendation on Collective Redress of June 11, 201328 must be regretted. Obviously, the Commission refrained from proposing binding standards for collective remedies and preferred a soft instrument which must not be formally adopted by the Parliament and the Council.29 As a result, member states remain free to change their national procedures in order to 27

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Hess, A Coherent Approach to European Collective Redress, in: Fairgrieve & Lein (ed), Extra-territoriality and Collective Redress (2012), paras 6.15 et seq. Commission’s Recommendation on Collective Redress of June 11, 2013. The (draft) Recommendation provides for a set of common principles for injunctive and compensatory collective redress mechanisms. These principles contain legislative guidelines for the Member States with regard to the enactment of collective redress procedures in their respective procedural systems.

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attract high value (collective) litigation. Without clear minimum standards and specific limits of European Union law, the heated competition among the national judicial markets in the EU-member states will continue and result in adverse effects to the detriment of a sound administration of collective procedures in the European Union.

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The Consolidation of Collective Claims Under Brussels I Arnaud Nuyts* 1. Introduction The purpose of this contribution is to review the various ways of consolidating collective claims before the court of one single Member State under Council Regulation (EC) No 44 / 2001 of 22 December 2000 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters (“Brussels I” or “the Regulation”), or, as from 10 January 2015, the new Council Regulation (EU) No 1215 / 2012 on the same subject (“Brussels I Bis”). Consolidation of claims is the very purpose of collective redress or class actions: the idea is that some claims are unfit to be brought on an individual basis, for instance because they have a small value and / or they involve large costs to be prosecuted. These individual claims are therefore joined into a single, consolidated action. But to what extent is it possible, in Europe, to achieve the consolidation of claims in a cross-border context, namely when the alleged illegal activity that gives rise to the dispute is spread over several territories and / or adversely affects persons established in various Member States and / or third States? There is a great variety of procedural ways to seek collective redress.1 For purposes of this paper, a distinction can be made between three basic models. Firstly, there is the “group action” model, where a number of identified claimants bring actions in one procedure to enforce their claims together. Second, there is the “representative action” model, where an ex ante authorized or representative body bring actions on behalf of a group of individuals, who are not themselves parties to the proceedings. Third, there is the “class action” model, where a plaintiff acts on behalf of a group *

1

This paper contains the written notes of the presentation made at the Conference held in Brussels on 27 April 2012, and takes into account legal developments on the subject up to that date, though at the time of editing references to the Brussels I Regulation have been supplemented by reference to the new Brussels I Bis Regulation. See., e.g., J. Stuyck, «Class Actions in Europe? To Opt-In or to Opt-Out, that is the Question», [2009] EBLR 483, at 485.

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of individuals who will be bound by the outcome of the procedure, either if they have “opted in” or if they have not “opted out”. Whatever model applies, when collective redress is used in a cross-border context, the first issue that arises is jurisdiction. In the “group action” model, when various claimants domiciled in different Member States (or non Member States) wish to bundle their claims, can all these claims be brought before one single jurisdiction, and on what basis? In the “representative action” model, when the action is initiated, for instance, by a consumer organization against a corporate defendant for an alleged harmful practice that spreads over several Member States, can such representative organization act in respect the entire illegal practice before one single Member State? In the “class action” model, can foreign plaintiffs opt in existing proceedings pending in a Member State? In the opt-out variety, does the court have jurisdiction to entertain the claim in respect of (absent) foreign class claimants? The conventional wisdom is that the Brussels I regulation is not adapted to the needs of collective redress.2 This is because the Regulation rests upon a conception of dispute resolution that is essentially individual and this remains true in the Brussels I Bis regulation. The model is the two party dispute, one claimant and one defendant.3 There are only two provisions in the entire regulation that acknowledge the fact that proceedings may involve more than two parties.4 First, there is a rule that permits to bring proceedings against two or more defendants before the court of the domi2

3 4

On the application of the Brussels I Regulation in the collective redress context, see, e.g., H. Muir Watt, «Brussels I and Aggregate Litigation or the Case for Redesigning the Common Judicial Area in Order to Respond to Changing Dynamics, Functions and Structures in Contemporary Adjudication and Litigation», 30 IPRax (2010) 111; B. Hess, «Cross-Border Litigation and the Regulation Brussels I», 30 IPRax (2010) 116; M. Danov, «The Brussels I Regulation: Cross-Border Collective Redress Proceedings and Judgments», 6 Journal of Private International Law (2010) 359; Z. Tang, «Consumer Collective Redress in European Private International Law», 7 Journal of Private International Law (2011) 101; D. Tzakas, «Effective Collective Redress in Antitrust and Consumer Protection Matters: Panacea or Chimera?», 48 CML Rev. (2011) 1125; C. Kessedjian, «Le droit entre concurrence et coopération», in Vers de nouveaux équilibres entre les ordres juridiques – Liber Amicorum H. Gaudemet-Tallon (ed. Dalloz, 2005), p. 129. See Hess, op. cit., p. 116; Muir Watt, op. cit., p. 111. The Regulation also provides for the possibility to bring «third party proceedings» in the court seised of the original proceedings (article 6(2)). Th is basis of jurisdiction permits the bundling of two individual claims that are related, but does not seem fit to address the case where there is a larger group of litigants.

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cile of one of them (article 6(1) Brussels I, article 8(1) Brussels I Bis). This rule deals with the case where there is one claimant, and several defendants; there is no rule for the reverse situation: where there is one defendant, and several claimants. Second, there is a rule about parallel proceedings, which allows the second seized court, in its discretion, to stay or dismiss the proceedings because there are related proceedings, which may involve (many) other parties, in another Member State (article 28 Brussels I, article 30 Brussels I Bis). This is not a rule of jurisdiction: the court second seized may stay or dismiss the proceedings, but there is no provision in the Regulation that invests the first seized court with the power to hear several claims together only because they are related to each other. The fact that claims are related to each other is not, in the current text of the Regulation, a basis of jurisdiction.5 So, under the current text of the Regulation (and this applies also under the new Brussels I Bis regulation), to what extent can various individual claims be consolidated before the court of one single Member State? In which forum can a pan-European group action, representative action, or class action (opt-in or opt-out) be brought?

2. Domicile of the Defendant The most obvious candidate is the domicile of the defendant, who in collective redress proceedings is often going to be a corporate defendant. This is the application of the basic rule of article 2 of the Regulation. If there are several defendants, for example in the case of collective redress for damages caused by an international cartel involving companies domiciled in different Member States, proceedings can be brought before the court of the Member State where one of the defendants is domiciled. This is the application of article 6(1) of the Regulation (article 8(1) Brussels I). It has been suggested that the domicile of the defendant (or of one of the defendants) should actually be the only rule of jurisdiction for collective redress.6 By definition, we are dealing with a cross-border activity that causes damages in the territories or in the markets of more than one State. The harmful activity is spread across several States, and the victims or consumers who are harmed by this activity are based in different States. 5

6

This has been confirmed by the European Court of Justice: see Elefanten Schuh, case 150 / 80 [1981] ECR 1671; Réunion européenne, case C-51 / 97 [1998] ECR I-6511. For discussions of this option, Tzakas, op. cit., p. 1155. See also the interesting analysis of Kessedjian, op. cit., p. 129, who points out that this is the only forum where all the actions can be consolidated.

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The domicile of the defendant would seem to provide in that case the only central point where all claims and interests can be consolidated and taken into account by a single court. Giving jurisdiction to any other court than the court of the defendant would require that a choice be made amongst, potentially, a large number of other fora. This would arguably generate a number of problems. First, it would involve discrimination between the various classes of claimants, as the action, by definition, would have to be brought in the Member State where some of the claimants are domiciled, but not of others. Second, it would generate forum shopping, as class claimants or representative would bring the action in the Member State where the procedures and laws are perceived to be the most advantageous for collective redress. Third, corporate defendants across Europe would be systematically hailed in the courts of those Member States which provide for the strongest accountability through the most forceful collective redress processes. Fourth, giving jurisdiction to more than one court would mean that collective redress proceedings could potentially be initiated concurrently in different Member States, raising the issue of parallel collective redress proceedings. On the other hand, to turn the forum of the defendant into an exclusive rule of jurisdiction for collective redress does not appear satisfactory either, again for more than one reason. First, such a rule would mean that the defendant would always have to be followed in the Member State of his domicile : this could be seen as a disincentive for prospective members of the group or class plaintiffs or representative, as litigating abroad usually involves higher costs and risks.7 Second, the rule would give a premium to the corporate defendant who would have the luxury to always defend collective redress proceedings at home. Third, such an exclusive rule of jurisdiction would create a safe-haven for industry in the Member States which do not provide for (effective) collective redress procedures.8 Companies domiciled, for instance, in France, where there is currently some hostility towards the most effective forms of collective redress, would never be subject to such forms. By contrast, companies domiciled in Member States such Sweden and Portugal, which have adopted quite wide ranging mechanisms of collective redress,9 would be subject to such mechanisms on a local basis; this is hardly in agreement with the idea of a common judicial area, or with the goal to avoid distortions of competition in the internal market.

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See Danov, op. cit., p. 365. See Muir Watt, op. cit., p. 112, f. 16; see also Kessedjian, op. cit., p. 129 and subs. On the basis of the «opt-in» model in Sweden, and of the «opt-out» model in Portugal: see Stuyck, op. cit., p. 488-489.

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In any event, as collective redress proceedings are not excluded from the existing rules of the Brussels I jurisdictional regime, the consequence is that, as the law presently stands, the domicile of the defendant is not the only rule of jurisdiction that can be relied upon. There is a number of other rules of jurisdiction that can be invoked, at least on paper. What needs to be assessed is whether these other rules of jurisdiction can work in the collective redress context.

3. Protective Jurisdiction When the losses are suffered by persons acting outside their trade or profession, jurisdiction is provided by the Regulation to the State courts of the domicile of such persons. Consumers, or at least “passive consumers”,10 have the distinct advantage, under European judicial law, to be entitled to bring proceedings in their home jurisdiction. The application of this protective jurisdictional rule in the context of collective redress raises complex issues.11 As the law presently stands, the generally accepted view is that claims from consumers established in different Member States cannot all be consolidated before the court of one Member State where some of these consumers are domiciled, at least under the protective rules of jurisdiction. There are two main reasons for this. First, it is doubtful that consumer protective rules apply at all to collective redress.12 Second, the protective rules are designed primarily with the view of allowing the consumer to bring proceedings at home; if there are plaintiffs coming from different Member States, the protection would consist in allowing consumers from each Member State to sue at home, leading to parallel collective redress proceedings, involving each time only the local class of consumers. Thus, this is not a tool that seems to be fit for the consolidation of collective redress proceedings.

10

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Namely the consumers who have concluded the contract in circumstances where the professional has pursued or directed activities towards the Member State of their domicile or towards several States including the Member State of their domicile: see art. 15(1)(c) of the Regulation. These issues are reviewed in the contributions to this volume by Gonzalez & Anoveros and Posnow. See also Tang, op. cit., p. 106-129. See Tang, op. cit., p. 108-114; Tzakas, op. cit., p. 1165-1166.

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4. Special Jurisdiction: Contracts The rules of special jurisdiction of article 5 of the Brussels I Regulation (article 7 Brussels I Bis) have a wider scop. of application: they are not restricted to a specific category of claimants. There are two rules of special jurisdiction in this provision that deserve closer attention: the rule for contract disputes, and the rule for tort disputes. For contracts, article 5(1) of Brussels I (article 7(1) Brussels I Bis) provides jurisdiction at the place of performance of the contract. The applicability of this provision to collective redress is acknowledged in the European Commission’s Green Paper on Consumer Collective Redress, which states that representative actions in this field “would have to be brought to the trader’s court or the court of the place of performance of the contract [under] Art. 5(1)”.13 However, the application of article 5(1) to collective redress is not as straightforward at this statement from the Commission may suggest. There are a number of hurdles that need to be overcome to make the contract forum available for collective redress plaintiffs. First, for article 5(1) to apply, it must be shown that the dispute can be classified as a “matter relating to a contract”. Under the Court of Jjustiustice’s case law, this implies that there be “an obligation freely assumed by one party towards another”.14 In Henkel,15 the Court has ruled that an action brought by an organized body to prevent the use of unfair terms in contracts with consumers is not contractual in nature. Does that mean that for article 5(1) to apply, there must be a contractual relation between the actual litigants before the court? If that was the case, article 5(1) would only apply to the “group action” model, where the claimants of the group are actually personally parties to the proceedings. It would not apply to the “representative action” model, nor to the “class action” (opt-in or opt-out) model. However, this conclusion is not certain. Henkel involves the specific case of preventive actions of consumer associations, and it does not necessarily control other kinds of collective redress actions.16 The wording of article 5(1) suggests that the claim must be “related” to a contract, not necessarily that the actual parties to the proceedings be themselves parties to the contract. Also, Henkel deals with the situation where the proceedings are initiated by a representative body who is not itself a party to any contract with 13 14 15 16

COM(2008) 794 fi nal, at para. 58. Jacob Handte, case C-26 / 91 [1992] ECR I-3967, at para. 15. Case C-167 / 00, [2002] ECR I-8111. See Michailidou, «Internationale Zuständigkeit bei vorbeugenden Verbandsklagen», 23 IPRax (2003) 223, at p. 224-225; comp. Tzakas, p. 1160-1161.

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the defendant. The analysis may be different in the “class action” model, where the action is initiated by one or several representative claimants who are actual contracting parties, acting in their own names and also in the name of other parties. At least in that case, it may be that the relationship should be deemed to be contractual in nature, even in respect of the absent class plaintiffs.17 Second, under article 5(1), jurisdiction is provided at the place of performance of the contract. This is defined as the place of delivery of goods or provision of services, or alternatively the place of performance of the obligation in question. This wording suggests that jurisdiction is provided individually, for each contract, at the place of performance of such contract.18 When there are two contracts, it is doubtful that proceedings can be brought at the place of performance of a given contract for a claim that relates to another contract, even if the legal and factual issues are the same. Thus, in the collective redress context, it is unlikely that separate contract claims can be aggregated when these contracts are being performed in different Member States. Is there a way to get around this result? When looking at the existing case law of the European Court of Justice on article 5(1), there is an emphasis by the Court on the need for “the centralization of jurisdiction” in contract disputes: in a series of cases,19 the Court has ruled that when a contract is being performed across several States, jurisdiction is provided at the principal place of performance. But these cases relate to the situation where there is one contract, between identified parties, that is performed in more than one Member State. In collective redress, we are dealing with an entirely different situation: there is a large group of separate contracts, a fraction of these contracts is performed entirely in one Member State, another fraction in another Member State, and so on and so forth. In that case, it is doubtful that article 5(1) of Brussels I or article 7(1) of Brussels I Bis permits the consolidation of all these contract claims before the court of the place of performance of some of them. This conclusion does not mean that the contract jurisdiction cannot be used in collective redress. It means that jurisdiction is likely to be limited to the claims that relate to the contracts that are performed locally. In other words, proceedings for collective redress can be initiated, for instance, in Sweden in relation to a bundle of contracts that are being performed in Sweden, and in Denmark in respect of contracts performed there. Of course, 17 18 19

Compare Tzakas, op. cit., p. 1158-1160. See Tzakas, op. cit., p. 1159. Color Drack, case C-386 / 05, [2007] ECR I-3699; Rehder, case C-204 / 08 [2009] ECR I-6073; Wood Floor, case C-19 / 09 [2010] ECR I-2121.

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this is not entirely satisfactory, as it leads to the partitioning of collective redress proceedings: there will be, at least potentially, as many such proceedings as there are Member States where contracts are being performed. The alternative is to bring one single collective redress action at the place of the domicile of the defendant.

5. Special Jurisdiction: Tort Is it easier to consolidate various tort claims before the court of one single Member State (other than the State of the domicile of the defendant)? Under article 5(3) of the Brussels I Regulation (article 7(2) Brussels I Bis), in matters relating to tort, delict or quasi-delict, proceedings can be brought “in the courts for the place where the harmful event occurred or may occur”. There is a very rich body of jurisprudence on the application of this provision. The main parameters of the tort jurisdiction under Brussels I are as follows: – Jurisdiction is provided at the place of the tort, which under European terminology is the place of the “harmful event”; – The place of the harmful event includes both the place where the damage is suffered and the place of the event giving rise to the damage;20 – The court of the place of the causal event has a wide jurisdiction: it can entertain claims concerning the entirety of the damage inflicted;21 – The court of the place of damage has a limited jurisdiction: it can only entertain claims that relate to the damage suffered locally.22 What are the implications of these principles for collective redress? When a group or a class of claimants, or a representative, wish to bring collective proceedings for an alleged cross-border tort (anti-competitive practice, environmental damage, product liability claim, etc.), the collective claimants have a choice between two fora. Firstly, the proceedings can be brought at the place of the causal event; the European Court of Justice considers that this place coincides, in general, with the establishment of the tortfeasor;23 if there is one single defendant to 20 21 22 23

Bier, case 21 / 76 [1976] ECR 1735; Shevill, case C-68 / 93 [1995] ECR I-415. Shevill, case C-68 / 93 [1995] ECR I-415. Shevill, case C-68 / 93 [1995] ECR I-415. For an analysis of this trend, see A. Nuyts, «Suing at the Place of Infringement : The Application of Article 5(3) of Regulation 44 / 2001 to IP Matters and Internet Disputes», in International Litigation in Intellectual Property and Information Technology, 2008, Kluwer Law International, p. 105, at p. 118-121.

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the collective redress proceedings, jurisdiction will therefore generally be given to the court of the domicile of the defendant ; this is not very useful, as jurisdiction is already provided at this place under article 2 (the identification of the causal event is more difficult when there are several defendants, as is often the case in cartel cases: in that kind of dispute, the causal event could probably be located at the place where the cartel was agreed, or at the place where the trade association is located24). Secondly, under 5(3) of Brussels I (article 7(2) Brussels I Bis), proceedings can be brought at the place where the damage is suffered; but such jurisdiction is limited to the damage suffered locally (Shevill jurisprudence). In the collective redress context, this would seem to mean that – as in contract matters – jurisdiction is restricted to the harmful activity that is located within the territory of the State where proceedings are brought. Again, the question arises: is there a way, under the current text of Brussels I, to get around this result, and to consolidate collective claims at the place where part of the damage is sustained? There has been a major recent development in the case law of cross-border tort in Europe, in a field that is unrelated to collective redress, but which is worth considering here. In the joined e-Date and Martinez case,25 the European Court of Justice was called to rule on the jurisdiction to entertain claims about the infringement of personality rights by means of the internet. There are two aspects of the judgment that are noteworthy for jurisdiction.26 First, the court ruled that jurisdiction is provided at the place where the website can be accessed, and that this jurisdiction is restricted to the harm caused in that Member State: this is the “pure” application of the Shevill jurisprudence to the online context; this part of the decision is not relevant as such for the collective redress context.27 Second, the court ruled that jurisdiction is also provided at the place “where the alleged victim has his center of interests”. The court of this place has jurisdiction for all the damages caused, even if the damages are suffered in other States. This ruling may be relevant in the context of collective redress, for a number of reasons.

24

25 26

27

On the specific issues relating to cross-border collective claims in competition matters, see the paper of M. Hellner. See also J. Basedow, «International Cartels and the Place of Acting under Article 5(3) of the Brussels I Regulation», in J. Basedow and S. Francq, International Antitrust Litigation, Hart, 2012, p. 31. Joined cases C-509 / 09 and C-161 / 10. The Court has also ruled on the much discussed issue of the impact on choice of law in tort of the internal market clause of the Electronic Commerce Directive. But it is highly contentious.

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First, the case demonstrates that article 5(3) of Brussels I (article 7(2) Brussels I Bis) can be construed as including connecting factors that are absent from the text, when the specific circumstances require to create such connecting factors; if a new connecting factor has been devised by the European Court of Justice for online invasion to privacy, why not also accep. that collective redress justify to develop a connecting factor that is suitable for this typ. of action? Second, the European Court of Justice has accepted, for the first time, that jurisdiction at the place where part of the damage is suffered has jurisdiction to entertain claims that relate to damages suffered in other States (this does not even appear to be limited to damages suffered in the Member States of the European Union). Third, to justify giving jurisdiction to the place of the center of interests of the victim, the Court has considered that this is in accord with (i) the “objective of the sound administration of justice”, (ii) the need to attribute jurisdiction to the place which has a “close connecting factor” to the dispute, and (ii) the aim of predictability of jurisdiction. In respect of this last point, the Court has ruled that jurisdiction if fair for the defendant as, at the time at which he places content online, he is “in a position to know the center of interests of the persons who are the subject of that content” (para. 50). Applying this reasoning to the case of collective redress, would it be such a big step to accept that jurisdiction is attributed at the place of the center of interests of the collective injured parties? It could be argued that jurisdiction is predictable at that place for the defendant, and that the consolidation of the claims in one forum will foster the sound administration of justice. In a subsequent case, Wintersteiger,28 the Court has refused to extend the application of the forum of the victim’s center of interests to online infringements of national trademarks. However, the Court justified this solution by reference to the principle of territoriality of national trademarks. As for the infringement of personality rights, the situation involves a person whose personality rights are protected in all Member States, and this is what requires, according to the Court, that a single forum be available at the place of the center of interests of the victim. This reasoning could, again, support that article 5(3) of Brussels I (article 7(2) Brussels I Bis) be construed as providing, in the context of collective redress, for a jurisdiction at the place of the center of interests of the collective injured parties. Of course, such a concentration rule would involve a spill-over effect, in the sense that the court of one Member State would rule on activities that have taken place entirely abroad, and have injured persons established abroad. But the acceptance of the spill-over effect is precisely what the Eu28

Case C-523 / 10.

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ropean Court of Justice seems to have accepted in Martinez (though not in relation to an individual relationship between one victim and one alleged tortfeasor). There is still one essential question that needs to be addressed: is it possible to bring the collective claims before the court of any Member State where damages are suffered by some victims of the larger, pan-European class? Or should the jurisdiction under article 5(3) of Brussels I (article 7(2) Brussels I Bis) be restricted to the court of the Member State which is most affected by the illegal practice? This is a very delicate question.29 On the one hand, it might be thought that the jurisdiction should be restricted to the place which is mainly affected: this is in accord with the approach of Martinez, under which jurisdiction is provided only at the place of the center of interests of the persons involved; this avoids excessive forum shopping. On the other hand, it may be difficult to identify the Member State or market which is the most affected by a mass tort; it might look like a forum non conveniens doctrine;30 also, such a concentration rule could have the effect to attribute jurisdiction only in the Member States which have large markets, where harmful activities are felt on a wider basis; injured parties from smaller markets would never enjoy the benefit to bring collective redress proceedings at home;31 so it may be that the test should be that jurisdiction is provided at any place where loss is suffered that is sufficiently material to comply with the requirements of predictability and sound administration of justice.

6. Parallel Collective Redress Proceedings The foregoing paragraphs are an attempt to identify possible ways in which collective redress proceedings could be consolidated before the court of one single Member State. At this stage, it should probably be conceded that the only forum where such consolidation can take place with certainty is the domicile of the defendant, or of one of the defendants. Outside of this forum, it will often be difficult or impossible to consolidate all the claims. Most of the time, the jurisdiction at the place of the domicile of the consumer, at the place of contract performance, at the place of tortious damage, will be restricted to activities or victims established in the Member State where proceedings have been brought.

29 30 31

See Tang, op. cit., p. 141-142. See Tzakas, op. cit., p. 1167. See Tzakas, op. cit., p. 1167.

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The consequence of this, of course, is that pan-European harmful activities are likely to give rise to separate collective redress proceedings in different Member States (unless the collective plaintiffs decide to bring proceedings only in the courts of the defendant’s domicile). The development of such kind of concurrent jurisdiction for collective redress seems to be the current trend in Europe. A number of Member States have already devised their own peculiar collective redress proceedings, which are used mainly against local defendants, or by local plaintiffs, on a national basis. This is not really satisfactory, for various reasons. Only four will be mentioned here. First, this may appear to go against the very purpose of collective redress, which is to bundle together claims on a large basis. Second, it prevents the development of pan-European collective redress proceedings. Third, it creates a regulatory competition between the Member States: there seems to be currently a drive towards the adoption by individual Member States of collective redress proceedings that are designed in part to attract litigation, which is seen as a product that generates revenues for the State.32 Fourth, this is likely to create difficulties of coordination between the parallel collective redress proceedings of the Member States. In respect of this last point, which is jurisdictional in nature, the solution is supposed to be found in the Regulation, which contains two rules about the coordination and prevention of parallel proceedings (articles 27 and 28 Brussels I, articles 29 and 30 Brussels I Bis). Article 27 of Brussels I (article 29 Brussels I Bis) deals with lis pendens, when the proceedings of two different Member States involve the very same dispute, in the sense that the parties and the cause of action are (sufficiently) identical. In that case, priority is given to the court first seized. This is a compulsory rule: the proceedings before the second court seized must be stayed. This provision will generally not apply in the case of concurrent collective redress proceedings, as the class claimants will usually be different in each Member State. However, the issue of the application of this provision may still arise in two situations. First, in opt-out proceedings, such proceedings could theoretically purport to cover absent claimants from other States. This is not a likely occurrence in Europ. for the moment, where the preferred model is the opt-in class action model, or the opt-out model but restricted to national plaintiffs. But the issue may arise in the future, as national law developt-in the Member States. Second, in the opt-in model, consumers could join a representative compensatory scheme which is pursued in court solely by the representative; in that case, under the traditional analysis, article 27 of Brussels I (article 29 Brussels I Bis) is unlikely to apply, as the consumers have joined the 32

See e.g. the example of the Dutch Act on collective settlements.

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scheme of compensation, but not the actual proceedings. The inapplicability of article 27 of Brussels I may be problematic in that case, as the consumer is the real beneficiary of the action, and may even be bound by the decision of the representative action.33 Article 28 of the Brussels I Regulation (article 30 Brussels I Bis) deals with the case of related actions. There is no requirement that the parties be the same, and the proceedings can relate to different causes of action. The provision applies to all cases where there is a risk of conflicting judgments, even if these judgments can be separately enforced.34 The court second seized has the discretion (and not the obligation) to stay its proceedings, or to dismiss the proceedings when they can be consolidated in the court first seized. This provision could be raised by a corporate defendant who is the subject of concurrent collective redress proceedings in different Member States, in relation to the same allegedly harmful practice. For instance, representative actions can be brought in two Member States, on behalf of consumers domiciled respectively in these Member States. It is difficult to assess in general whether the discretion to stay proceedings should be exercised, as it depends on the specific circumstances of the case. In the absence of any ruling from the European Court of Justice on the way the discretion should be understood, it is traditional to refer to the Opinion of Advocate General Lenz in Owens v. Bracco.35 There are three main criteria to consider: the degree of connection between the two proceedings, the stage reached in each set of proceedings, and the proximity of the courts to the subject matter of the case. However, the general trend is that wherever possible, the discretion should be exercised to avoid the risk of conflicting judgments. In relation to collective redress proceedings, the need to avoid the risk of conflicting judgments seems to be particularly paramount, as by definition, we are dealing with the same illegal activity, by the same corporate defendant, that produces harmful events on a wide scale across borders. Under article 28 of Brussels I (article 30 Brussels I Bis), two possibilities may arise. Firstly, it may happen that the first seized court has, as a matter of law, the power to entertain all the claims. In that case, under article 28(2) of Brussels I, the court second seized can dismiss the proceedings. This supposes that the court first seized has jurisdiction to hear all claims.36 At this stage, a practical question arises for the corporate defendant who would face concurrent collective redress proceedings in respect of the same pan33 34 35 36

See Tang, op. cit., p. 125-126. See The Tatry, case C-406 / 92, [1994] ECR I-5439. Case C-129 / 92 [1994] ECR I-117. And that the procedural rules of the first seized court permit the consolidation.

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European activity: to what extent could such corporate defendant assert, in the second seized court, that the first seized court has jurisdiction on the basis that it is prepared to appear before such court without challenging jurisdiction? Can the corporate defendant obtain, in that way, a consolidation of all the claims? This does not seem to be in agreement with the Brussels I regime. Indeed, while the corporate defendant may undertake not to contest the jurisdiction in the first seized court, how can the collective claimants in the second seized court be forced to participate in the proceedings in the first seized court? Is there another way to approach this issue? To what extent could the corporate defendant bring itself an action for a declaratory judgment against the collective claimants of the other Member State(s)? It may be informative to look at the experience of the Court of appeal of Amsterdam on the application of the Dutch law on collective settlements.37 In the notable Shell38 and Converium39 cases, the Amsterdam court has ruled that it has jurisdiction to declare a settlement agreement binding on all injured parties who have not opted out, including non-Dutch residents. The court ruled that it has jurisdiction over the non-Dutch residents under article 6(1) of Brussels I (article 8(1) Brussels Bis): in the Converium case, 200 of the 12.000 purchasers who had been affected had their domicile in the Netherlands. The court has ruled that these putative purchasers, thought not personally party to the settlement agreement, were to be considered as defendants in the proceedings. This decision has been criticized in legal writing,40 but not by some Dutch writers who consider that the purchasers can be deemed to be defendants as they have been notified of the petition and have the right to appear in the proceedings and oppose the settlement, or to opt-out.41 Assuming that this is right, then such analysis could have important consequences that go beyond the specific Dutch practice of collective settlements. Indeed, corporate defendants could themselves “tag along” in collective ac37

38 39 40 41

See H. van Lith, «The Dutch Collective Settlements Act and Private International Law» (2010), available on http: // www.wodc.nl; W. Boom and T. Arons, «Beyond Tulip. and Cheese: Exporting Mass Securities Claim Settlements from the Netherlands» (2010) 21 European Business Law Review 5; R. Polak, «Approval of International Class Action Settlements in the Netherlands», in The International Comparative Legal Guide to Class & Group Actions 2009 – A Practical Insight to Cross-Border Class and Group Actions Work, London, Global Legal Group. 2009, available at www.iclg.co.uk. Court of appeal of Amsterdam, Shell NJ (2009) 506. Court of appeal of Amsterdam, Converium (2010). See., e.g., Tang, op. cit., p. 122-123. See R. Polak, op. cit.; van Lith, op. cit., p. 38.

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tions that are pending in one Member State in order to add classes of injured parties from other Member States, on the basis that such injured parties are co-defendants to the injured parties where the proceedings have been initiated. This may appear to be quite far stretched, but it is arguably not very different from what the Court of appeal of Amsterdam has accepted in the Converium case. Going back to the issue of concurrent collective redress proceedings, the second option, under article 28(1) of Brussels I (article 30(1) Brussels I Bis), is that the first court seized does not have jurisdiction to hear all claims. In that case, the operation of article 28(1) of Brussels I implies that the second court seized will stay its proceedings until the case is resolved in the first court seized; thereafter, the logic is that case should be resumed in the court second seized, with the benefit of a judgment having been given in the court first seized. In that situation, the application of article 28 of Brussels I will turn the collective redress proceedings that have been initiated in the first Member State as a “test case” for the other Member States. This raises other complex issues in respect of the effect of the judgment obtained in the court first seized in the other Member States. These issues fall within the theme of recognition and enforcement of collective judgments, which is covered in this Volume by the paper of Professor Richard Fentiman.

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Recognition, Enforcement and Collective Judgments Richard Fentiman 1. Preamble In July 2012 the leading British bank Barclays admitted its involvement in rigging the London interbank lending rate widely used by financial institutions in London and elsewhere as a benchmark in costing their products.1 Numerous transactions may have been wrongly priced as a result, to the detriment of foreign counterparties. In an environment where commercial class actions are increasingly common, there is already evidence that some foreign investors and borrowers are contemplating class actions against Barclays in their own courts.2 Any such claims will be for substantial sums, given that only major businesses tend to engage in such transactions, and given the high value of such transactions. It is estimated that some $550 trillion in financial products worldwide are pegged to the London interbank rate, ensuring that the ensuing litigation may be unprecedented in its scale and value.3 The viability of such proceedings will depend, however, as much on English law as on the law applicable where such claims are brought. Judgments obtained in one country against a party located elsewhere are worthless unless capable of recognition or enforcement where they are relied upon, a matter for the law in force where recognition or enforcement is sought. This makes the effectiveness of collective judgments outside the court of origin central to obtaining collective redress. It makes the question whether such relief is effective abroad the first question the claimant’s advisers must address, not (as might be supposed) the last. There is no point in suing at all 1

2

3

The London Interbank Offer Rate, or ‘Libor’, set daily based on submissions from banks as to their own borrowing costs. Barclays admitted submitting inaccurately low rates so as to suggest that they were in a better position to obtain market funding than was the case. As in Australia: The Australian, 10 July 2012. US class action proceedings have also begun against Barclays relating to its role as a participant in the US dollar Libor panel, and in respect of his role on Japanese Yen Libor panel: International Business Times, 27 July 2012. Nesara Australia, 21 July 2012.

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unless any judgment is effective. But it also makes the effectiveness of such judgments a primary concern for potential defendants. This is not just for the obvious reason that defendants need to assess their likely exposure to damages. It is for a reason special to collective redress – or to certain forms of collective action. Collective judgments in class actions typically bind all members of

the class, even sometimes those who through volition or inaction have not participated in the action. The effect is that any judgment – or, more likely, any settlement – will prevent such non-participant class members from litigating their claims independently. The consequence is closure for the defendant, and protection from protracted litigation and multiple claims, ensuring that the preclusive effect of collective judgments is a prime concern for defendants. To what extent therefore will the courts of one country recognize or enforce collective judgments obtained elsewhere? The issue is central to the effectiveness of cross-border collective redress and has considerable practical importance affecting the utility of class actions. Not least it may affect the readiness of potential class members to participate in the action. The question also raises significant (if familiar) matters of principle, concerning the extent to which the enforcing court may properly deny effect to judgments effective where they are obtained – issues with particular resonance within the European Union. Most importantly, however, the recognition and enforcement of collective judgments poses important questions, concerning both the design of procedures for collective redress, and the grounds on which a court should deny effect to a collective judgment obtained elsewhere. Objections to such judgments principally concern their fairness. But does this mean that the procedures for collective redress, particularly those which purport to bind non-participating members of a claimant class, must be made to comply with the standards of the receiving court? Or does it mean that familiar conceptions of due process, traditionally embodied in grounds for denying effect to foreign judgments, are inapt to deal with the special circumstances of collective redress? For the private international lawyer the allocation of responsibility suggested by these questions is of particular concern, and how they might be answered is a prime concern of the following remarks. The effectiveness of foreign collective judgments depends, however, on the nature of the procedures for collective redress in the court of origin. At its simplest, such procedures might simply permit the consolidation of claims, or representative actions on behalf of a group of claimants. But of most concern are those procedures which purport to bind even non-participating members of a claimant class. Exemplified famously by the procedure established by US Federal Rule of Civil Procedure 23(2)(c)(B), such ‘opt-out’ models typically provide that a collective judgment (or settlement) will bind 86

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those putative claimants who do not seek exclusion from the class. Where a class is certified, Rule 23 provides that the court must direct to class members the best notice that is practicable under the circumstances, including individual notice to all members who can be identified through reasonable effort. The notice must clearly and concisely state in plain, easily understood language: … (v) that the court will exclude from the class any member who requests exclusion; … and (vii) the binding effect of a class judgment on members under Rule 23(c)(3). Other models for collective redress exist. But whether a judgment or settlement obtained in such circumstances is binding on involuntarily included parties raises particularly significant questions of principle. Inevitably, it is with this model that the following remarks are mainly concerned. Such issues are the concern of what follows. But the scope of the following enquiry needs clarification. It is rooted in a ‘European’ response to the problem of collective redress. But the following remarks are not devoted to possible legislative initiatives within the EU. Not least this is because the matter is far from settled. Nor are they concerned only with the effect in one Member State of a collective judgment obtained in another such State, but also with the effect in Member States of judgments obtained outside the EU. Though not embraced by Regulation 44 / 2001 the effect of third-state collective judgments is a matter of concern to all Member States, not least for the important reason that the recognition of such judgments depends on such common instruments as the European Convention on Human Rights, and the EU Charter of Fundamental Rights. Indeed, the effect in Europe of a third-state collective award or settlement is also the issue which more than any other preoccupies practitioners. For them, the typical scenario is one in which a European party (normally an investor) would recover only a minimal amount under a collective award or settlement (invariably obtained in the United States), and so brings independent proceedings for damages in its home court. The defendant responds by relying on the preclusive effect of the judgment or settlement. The claimant argues in return that public policy considerations prevent reliance on the outcome in the foreign proceedings, perhaps because the foreign action proceeded on an ‘opt-out’ basis. The issue is given particular vitality because a division of opinion already exists

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between countries which regard such awards or settlements as aberrant and those which do not.4 Notably, the Dutch courts are ready to uphold them.5 In the light of these practical concerns the following remarks are focused largely on two issues. First, to what extent are settlements obtained in collective proceedings to be regarded as judgments? Secondly, to what extent do collective judgments have preclusive effect against non-participating members of a class certified under an opt-out model of collective redress? But what follows also has a wider theme. It is customary to ask how collective redress might be handled under traditional models for the recognition and enforcement of foreign judgments. But this is to beg the deeper question whether existing rules regulating foreign judgments are appropriate at all in the context of collective redress.

2. Four Issues – and Some Deeper Questions What problems are associated with the recognition and enforcement of foreign class-action judgments and court-approved settlements?6 Whether a judgment given in one country in a class action – a collective judgment has effect in another country involves four principal issues: First, when can a defendant resist enforcement of a foreign collective judgment? The question has two aspects. When may a defendant do so on 4

5

6

In their amicus brief in Morrison v National Australia Bank Ltd 561 US (2010), US Sup Ct. Royal Ahold NV, Jurisprudentie Ondernemingsrecht, 2010, 225, Amsterdam Court of Appeal, 23 June 2010. The journal literature is extensive. Of particular relevance to the concerns of this paper are: Dixon, ‘The res judicata Effect in England of a US Class Action Settlement’, (1997) ICLQ 134; Pinna, ‘Recognition and Res Judicata of US Class Action Judgments in European Legal Systems’, 1 Erasmus LR 43 (2008); Arons / van Boom, ‘Beyond Tulips and Cheese: Exporting Mass Securities Claim Settlements from the Netherlands’, 21 Eur Bus LR 857 (2010); Wasserman, ‘Transnational Class Actions and Interjurisdictional Preclusion’, 86 Notre Dame LR 313 (2010); Monestier, ‘Transnational Class Actions and the Illusory Search for Res Judicata’, 86 Tulane L Rev (2011) 1; Stiggelbout, ‘The Recognition in England and Wales of United States Judgments in Class Actions’, 52 Harv Int LJ (2011) 433; Strong, ‘Cross-Border Collective Redress in the European Union: Constitutional Rights in the Face of the Brussels I Regulation’, Arizona State Law L J, vol 45 (2013). See also, Guidelines for Recognising and Enforcing Foreign Judgments for Collective Redress, IBA Legal Practice Division (2010). And see generally, Fairgreive / Lein, eds, Extraterritoriality and Collective Redress (Oxford, OUP, 2010), esp. Chapters 10, 17.

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the basis that the procedures governing collective redress in the court of origin infringe its procedural rights? Again, when may a parent company resist enforcement on the basis that it only operated in the judgment court through a third party, such as a subsidiary or agent? Secondly, when will such a judgment have preclusive effect? When (if at all) can a defendant rely on such a judgment or settlement to prevent a fresh action by a non-participating class member based on a cause of action previously adjudicated by the court where judgment was obtained? More particularly, when may it do so as against a non-participating claimant in an opt-out system? Thirdly, in what circumstances will a court-approved settlement be accorded the status of a judgment, and have the same preclusive effect? Fourthly, to what extent would the answers to these questions be different if they concern the effect in an EU Member State of a collective judgment obtained in another such State? Underlying these issues, however, more fundamental questions are concealed. To what extent are the traditional rules concerning recognition and enforcement appropriate in the context of collective redress? Is the individualized conception of justice implicit in those rules necessarily superior the collective conception underlying class actions? Given that the rights protected by the traditional approach are fundamental, is it necessary to adhere to traditional principles to protect those rights? The purpose of the following remarks is not to answer those questions, but to argue why they should be asked. In practice, the preclusive effect of collective judgments – more precisely, of collective settlements – is the dominant issue, involving consideration of the second, third, and fourth of these questions. But the first question, concerning the enforcement of collective judgments, must first (briefly) be addressed.

3. The Enforcement of Collective Judgments Defendants do not always seek to rely on foreign collective judgments. They may instead wish to avoid them. Rather than rely on the preclusive effective of such judgments, they may argue against their enforcement. There may be two reasons for this. A defendant may consider that enforcement would be unfair. Or a defendant may argue that it was not a party to the foreign proceedings. In some circumstances the procedures for granting collective redress may be regarded as unfair, with the effect that a judgment in collective proceedings is unenforceable elsewhere against the defendant. A prominent 89

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example, which illustrates the difficulties involved, is the English case of Adams v Cape Industries plc.7 Cape, incorporated in England, mined and marketed asbestos, was sued in Texas by several hundred claimants who sought damages for personal injuries allegedly caused by the installation of asbestos in their place of work. The judgment in the Texas proceedings was unenforceable against Cape inter alia because the method by which the damages payable to each of the claimants was calculated was contrary to English conceptions of procedural justice. The total amount of the judgment against Cape, which exceeded US $15 million, was arrived at on the basis of the Texas judge’s direction that the total award should represent an average of $75,000 for each claimant. The sum awarded to each claimant was calculated by allocating each to one of four bands. The amount awarded within each band was determined by the claimant’s counsel, who also allocated the claimants to each of the bands. This methodology was not required by the procedural rules in force in Texas, but had been suggested by the claimant’s counsel, and accepted by the judge. In involved applying to proceedings for a default judgment, in which the defendants were necessarily not present, a procedure intended to be used when arriving at a court-approved settlement between the parties. Such a procedure, in those circumstances, was contrary to English conceptions of justice because the total award did not derive from any objective, evidence-based assessment by the judge of the injuries sustained by each individual claimant. As the Court of Appeal expressed it: Our notions of substantial justice include, in our judgment, the requirement that in such a case the amount of compensation should not be fixed subjectively by or on behalf of the plaintiff.8 In some circumstances, therefore, the effective enforcement of a collective judgment may be prevented because the collective nature of the foreign court’s process is perceived as objectionable. The requirement that compensation must be individually assessed is a fundamental principle. But it reflects a particular individuated, atomic conception of justice, in which rights and responsibilities adhere only to individuals. This conception sits uneasily with the collective nature of class actions. It is tempting to assume unreflectively that the principle is elemental, and that the law can never accommodate alternative, collective institutions. It may be that the principle is well-founded. But nothing is served merely by taking it granted. It is right to ask whether the value of collective redress, and the procedural safeguards 7 8

[1990] Ch 433 (CA). At 467.

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it may offer, means that justice is not on balance served by insisting on the individual assessment of loss. Certainly, it is right to ask whether the balance of justice demands adherence to the principle in every case.

4. The Preclusive Effect of Collective Judgments a) The Risk of Non-preclusion A risk inherent in transnational class actions is that a judgment or courtapproved settlement is ineffective against a class member who sues in a foreign court on the ground that the judgment or settlement has no preclusive effect. The problem is unlikely to arise if the class member was a participant in the class action, and if the action culminates in a judgment on the merits. But difficulty may arise where a non-participating class member initiates fresh proceedings in a foreign court. Indeed, whether a collective judgment has preclusive effect concerns principally the practice in some countries, such as the United States, whereby a potential claimant who does not participate as a class member in the original proceedings is barred from pursuing any individual claim against the defendants related to the class action.9 The question of a collective judgment’s preclusive effect arises in two ways: first, in the court where recognition is sought; and, secondly, in the court where the class action is litigated. The latter court may refuse to certify as members of the class claimants from states in which recognition would be denied.10 Such refusal is invariably prompted by the argument commonly advanced by defendants that certification of a class would be unjust in so far as it offers no finality, because a class member from abroad might subsequently initiate proceedings in a foreign court where the judgment or settlement would not be recognized. In the Vivendi securities litigation, for example, the US District Court certified a class including non-US investors from England, France and the Netherlands, but excluding those from Austria and Germany. Such a refusal to certify depends, however, not on the law of forum certifying the class, but on the evidence of the law of such foreign states.11 The issue turns ultimately on whether that law will give any judgment preclusive effect. There are several reasons why a collective judgment or a court-approved settlement may not preclude a non-participating class member from bring9 10

11

Fed R Civ P 23(b)(3). As in In re Vivendi Universal, SA Securities Litigation, 241 F.R.D. 213 (SDNY Mar 22, 2007) (No 02 Civ 5571). And therefore on the vicissitudes of the process of proving foreign law.

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ing an individual claim in a court other than that where the class action was adjudicated.12 First, it may be an insuperable obstacle that a non-participant in a class action may not be regarded in the receiving court as a party to the proceedings. Secondly, in some systems a collective judgment cannot have preclusive effect against such a party, whose right to sue is regarded as indefeasible. Thirdly, the collective procedure employed in the court of origin may be regarded as an abuse of process by the receiving court. Each of these issues requires elaboration.

b) Non-parties and Procedural Justice The receiving state might deny effect to a collective judgment against a non-participant on the fundamental ground that a judgment cannot bind a non-party to the proceedings. The reason is that the principle of res judicata necessarily limits the preclusive effect of a judgment to the parties before the court. It might be objected that the principle is not offended if the adjudicating court considers that the participating claimants act as representatives of absentee class members, or because under the law of the court of origin a non-participant is regarded as a party to the action. But this in turn may be answered by the general principle of private international law that the scope and effect of a foreign judgment is a matter for the law of the enforcing court not the court of origin. As an illustration, English law insists that a judgment has preclusive effect only if between the same parties as the parties to the subsequent English action.13 There there must be ‘identity of parties and of subject-matter in the former and the present litigation’.14 This exposes the question whether a non-participating class member in a foreign class action, which subsequently litigates independently in England, can be described as party to any foreign judgment in the same dispute. Common sense suggests not. But an underlying question of principle arises, in English law as in any system. Is the determination of who is a party a matter for the law governing the collective action, or for English law? If the former, a non-participant will inevitably be treated as a party, if the judgment originates from a system in which a party is treated as bound by any judgment if they do not opt out. In the United States, for example, it has been held that all class members are parties ‘for purposes of being bound by the judgment in the class action, 12

13 14

For a comparative survey see Pinna, ‘Recognition and Res Judicata of US Class Action Judgments in European Legal Systems’, (2008) 1 Erasmus LR 43. Carl Zeiss Stiftung v Rayner and Keeler Ltd [1967] 1 AC 853 (HL). At 909.

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receiving the benefit of the statutes of limitations toll, and having standing to appeal from decisions and object to settlements’.15 If the position of the court of origin is decisive, a non-participant may therefore be a party. If it is not, however, the receiving court must ask whether for the purposes of recognizing a foreign judgment a non-participant is a party. This is a question of private international law, distinct from the question whether this would be the case in domestic law. It is a question which few courts have yet addressed. Importantly, however, to conclude that a non-participating class member is not a party to proceedings is not the end of the matter. The overriding question is whether, even if a non-party, an absentee would be denied justice if any judgment were given binding effect. It is unclear whether, in any legal systems, the traditional rules for recognition, embodying familiar principles of procedural justice, are sufficiently flexible to accommodate the particularities of collective redress. Suppose, however, that judgment in given in a system in which the judge is charged with the responsibility to protect the position of absentees, and suppose further that such absentees have received due notice of the proceedings, and perhaps also of any settlement or order. The principle that only parties are bound is intended to ensure that non-parties are not prejudiced by proceedings in which they have not participated. But even if an absentee is not a party can it be said in such circumstances that they would be prejudiced? As this suggests, it is an inadequate response merely to impose the traditional model, designed for different circumstances, on collective proceedings. The proper response is to ask whether in such cases that model serves the objectives for which it was intended.

c) Indefeasible Rights of Action A collective judgment might be ineffective against a non-participating class member because as a matter of public policy such a judgment cannot extinguish such a party’s right to initiate and terminate legal proceedings individually.16 This reflects the individualistic approach to procedural justice found in many legal systems, and embodied in their rules for the recognition and enforcement of foreign judgments. An instance of the potency of this conception of due process is the emphatic conclusion of the European 15 16

In re Agent Orange Product Liability Litigation, 104 FRD 559, n1 (EDNY 1985). As in French law, as suggested in the Amicus Brief submitted in by the French government in Morrison v National Australia Bank Ltd, at 27 (Morrison v National Australia Bank Ltd 561 US (2010), US Sup Ct).

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Parliament’s Legal Affairs Committee that any EU instrument on collective redress should not adopt such a model. The Report states that an opt-out system has to be rejected on the grounds that it is contrary to many Member States’ constitutions and violates the rights of any victim who might participate in the procedure unknowingly and yet would be bound by the court’s decision.17 The importance of such principles, and their immutability when given constitutional expression, cannot be denied. But it nonetheless proper to ask whether in the context of collective redress injustice would in fact be done to a non-participant. Certainly, as we shall see, it may be inadequate to adhere to norms promulgated without consideration of the contemporary issues raised by collective redress.

d) Absentees and Due Process The opt-out mechanism may be regarded as contrary to the principles of procedural justice, either by infringing a non-participant’s right to sufficient notice of the proceedings,18 or because in other respects such a party has no opportunity to be heard. These principles are embodied in what English lawyers would recognize as the principles of natural justice. As has been said by an English judge: Those principles seem to me to involve this, first of all the court being a court of competent jurisdiction, has given notice to the litigant that they are about to proceed to determine the rights between him and the other litigant: the other is that having given him that notice, it does afford him an opportunity of substantially presenting his case before the court.19 Can it be said in a given case that a non-participating claimant had no notice (or insufficient notice) of its options, or that (in the nature of the process) it had no notice (or insufficient notice) of any judgment or approved settlement by which it is said to be bound? If the mere giving of notice is enough to satisfy the requirement, the giving of notice of the ac17

18

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Report of 15.7.2011, Towards a Coherent European Approach to Collective Redress, Committee on Legal Affairs, (2011 / 2089(INI), 6. Illustrated by Canada Post Corp v Lépine, 2009 SCC 16, [2009] 1 SCR 549 (Sup Ct, Canada). Jacobson v Frachon (1927) 138 LT 386 (CA), per Atkin LJ.

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tion to all class members would no doubt be adequate. There is, however, in English law a strand in the cases which suggests that a non-participant must in addition receive notice of the proceedings in which the rights of the class are to be determined, which may not be the case in all systems of collective redress. It has been said that recognition will be denied ‘unless the party alleged to be bound had been served with the process which led to the foreign judgment’.20 If such a strict standard is imposed the mere fact that all class members have received notice of their options may be insufficient. Once again, in English law as in many systems, the applicability of traditional principles of recognition to collective redress remains uncertain. Particular uncertainty arises in English law where it is possible that the traditional principles of natural justice should be seen as but reflections of wider considerations of due process. In one leading case, the court denied effect to a foreign judgment not on the grounds of lack of notice or opportunity to be heard, but because it was contrary to ‘substantial justice’ that the court had assessed damages in a class action without identifying the loss suffered by each individual claimant.21 Arguably, this suggests that a broader approach to procedural justice is required. If so, the question is not whether notice has been given, it is whether more generally the standards of due process have been met. Such a broader perspective might allow a court to give binding effect to a collective judgment against a non-participant if, for example, it can be shown that the foreign judge had a duty in law to respect the rights of non-participants, as is the the case in the United States.

e) Contingent Difficulties In other ways foreign collective judgments may be ineffective, not because of the distinctive features of such relief, but because of the circumstances in which such cases arise. Such difficulties are not inherent but contingent, but they are nonetheless real. In English law, for example, a judgment will be ineffective against a party who is not present in the foreign court’s jurisdiction at the time proceedings were initiated, and who has not submitted to such jurisdiction.22 These general rules have particular importance in the context of proceedings by non-participating class member in courts other than those where the class action was initiated. In such cases it may be difficult to assert credibly that the non-participating party has submitted to the 20

21 22

Campos v Kentucky & Indiana Terminal Railway [1962] 2 Lloyd’s Rep 459, 473 (QB), per McNair J. Adams v Cape Industries plc [1990] Ch 433 (CA). Adams v Cape Industries plc.

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foreign court’s jurisdiction in the collective proceedings. At the least, to say that a failure to opt-out constitutes submission involves saying than such a party’s inaction amounts to voluntary participation in those proceedings. Moreover, it is unlikely that such a party will have the necessary presence in the foreign court’s territory. The fact that they are attempting to pursue their claim in another court suggests that they are present instead in that court’s territory. In such circumstances, the foreign judgment would not be effective against that party. Again, public policy may prevent recognition of a collective judgment for reasons unrelated to the collective nature of the relief. Notably, some courts may object to the extraterritorial nature, as against the defendant, of ‘foreign-cubed’ US securities class actions.23 Other courts may object to the award of punitive damages, in such cases as in others. The effect is to deprive such proceedings of any legal effect in the recognizing court.

f) Interim Conclusions The existence of such potential obtacles to the recognition of foreign collective judgments prompts several reflections: First, the difficulty that a collective judgment may not have preclusive effect in foreign proceedings poses a significant threat to defendants (and their insurers), and obstructs the development of transnational class-action procedures. This is not merely because such judgments may be ineffective in foreign courts. It also creates significant difficulties for the primary court at the stage when a court seeks to certify a class. It provides defendants with a fertile means to prevent or delay proceedings, or at least to limit the scope of the claimant class, and so prejudices claimants. It increases the cost and duration of the primary proceedings. It also poses difficult questions for the primary court. It involves establishing the content of foreign law, in so far as the treatment of any judgment or settlement in other courts must be determined. The proof of foreign law is at best an unpredictable exercise. But particular difficulty arises here, given that the response of many legal systems to collective judgments is unclear, especially where the status of an opt-out claimant is involved. Secondly, in so far as such difficulties involve the effect of collective judgments or settlements generally, it is uncertain how they could be removed. In theory, the harmonization of rules concerning recognition would 23

As perhaps in French law, as suggested in the amicus brief submitted by the French government in Morrison v National Australia Bank Ltd, at 26 (Morrison v National Australia Bank Ltd 561 US (2010), US Sup Ct).

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introduce certainty. But it would doubtless be inappropriate to deny courts the power to express legitimate concerns about justice and public policy, which would render such harmonization pointless. It is revealing that the Commission’s one-time proposal to abolish both exequatur and the possibility of non-recognition by a receiving state on public policy grounds would not have extended to collective judgments.24 Thirdly, such obstacles to the effectiveness of collective judgments might in principle be removed or reduced by alterations in the procedures for collective redress in the court of origin. Difficulty about the status of a court-approved settlement as a judgment might be removed, for example, if the primary court exercises a judicial function in approving the settlement. Again, improving the mechanisms for giving notice to potential class members would remove at least some difficulties. More radically, many difficulties would disappear if the opt-out process were replaced by one in which class members are required to opt in.25 This, however, exposes an important tension, and highlights a recurring theme. Such changes might enhance the effectiveness abroad of collective judgment, but in doing so they might undermine the viability of collective redress. Not least, an ‘optin’ model, in which only voluntary participants are bound by any judgment, may jeopardize the economic justification for collective redress by exposing defendants to the risk of multiple claims by non-participants. And such a process may prejudice potential claimants by placing upon them the onus of signaling their participation. Fourthly, and most importantly, the fact that the traditional rules for enforcement, and the important rights they protect, may deny preclusive effect to foreign collective judgments should not be seen as a conclusion but as a problem. The proper response is to ask what rights are protected by the traditional approach, and to ask whether on inspection those rights are truly infringed by procedures for collective redress – or at least by those which place a premium on protecting the rights of non-participants.

24

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Article 37(3)(b) of the draft contained in the Commission Proposal of 14 December 2010: Proposal for a Regulation of the European Parliament and of the Council on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (Recast), Brussels 14.10.2010. The procedure has been abolished, but the existing defences to recognition and enforcement are retained. See further Monestier, ‘Transnational Class Actions and the Illusory Search for Res Judicata’, (2011) 86 Tulane LR 1.

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5. The Status of Collective Settlements It has so far been assumed that a class-action settlement enjoys the status of a judgment and has the same preclusive effect. But this may not be the case, or it may not be the case for every such settlement. In principle, two questions arise: in what circumstances is a settlement a judgment; if a judgment, is it a judgment of a type which the receiving court will recognize? Such questions are of the first importance, given that collective disputes invariably conclude in a court-approved settlement. In theory, a third question also arises in the problematic case where a defendant relies on a court-approved settlement against an absent defendant which failed to opt out of proceedings subject to an opt-out model. In such cases the argument might be advanced that, even if court approval gives preclusive effect to a settlement, the origins of any settlement are consensual. How then can a settlement exist if a party has never truly consented to the outcome (even if any court order purports to extend to such a party)? The third question replicates but is distinct from the question whether a court approved settlement can bind a non-party as a matter of public policy. It transforms that question whether a settlement can bind a non-party into the question whether in such cases there is, as against an absent claimant, a settlement at all. In substance, however, the issues arising in this context are the same as those which always arise when the rights of non-parties are in question, and the matter need not be pursued here. What, however, of the first and second issues concerning the status of collective settlements? The first issue is unlikely to cause difficulty if the settlement was embodied in a court order – a ‘consent order’ in English law. As was said in an English case a ‘judgment entered by consent or in default is nonetheless a judgment.’26 Greater difficulty concerns whether such a judgment is of a type which can be recognized. Typically, the difficulty is that only judgments on the merits will be effective. As always when considering the rules of recognition and enforcement the issue turns on whether the law of the court of origin or that of the receiving court should prevail. Arguably, it should be sufficient that a court-approved settlement is res judicata in the primary court.27 But this may be seen as a necessary but not sufficient condition for giving it preclusive effect under the private international law rules of the court where recognition is sought. It may be necessary in addition that the court’s order involves adjudication of the issues by the court.28 26 27

28

Landhurst Leasing Plc v Marcq [1998] ILPr 822, 832 (CA), per Beldam LJ. Suggested in English law by Lord Diplock in The Sennar (No 2) [1985] 1 WLR 490, 494. Suggested by Lord Brandon in The Sennar (No 2), at 499.

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If some element of adjudication is required, this poses a further question. Is it sufficient that there is an exercise by the court of its judicial function short of an independent determination on the merits? Suppose that a court merely approves the settlement, perhaps having ensured that it complied with local procedure, or that it represented the parties’ true consensus. To do so is not to address the merits of the claim, but it involves an element of judicial control. Alternatively, suppose that a court assesses whether the settlement represents an appropriate or proportionate outcome given that merits. In doing the court addresses the merits, even if it does not adjudicate upon them. These difficulties are illustrated in English law, where the position remains unclear. A judgment is binding in English law only if a judgment on the merits of the dispute.29 A final judgment of the foreign court in a class action would satisfy this requirement, but what of a collective settlement? The English courts have taken a liberal view of whether a judicial consent order approving a settlement is a judgment. It has been held that a judgment by consent is a judgment for the purposes of recognition.30 But the question here is distinct. It is whether such a judgment is one on the substance of the case for the purposes of the common law rules of recognition. A purely private settlement would not qualify, whatever its contractual effect inter partes. Indeed, it would presumably not qualify as a judgment at all. But what is the status of a court-approved settlement? It has been suggested that in English law it is sufficient that a court-approved settlement is res judicata in the court of origin.31 This implies that the finality of the judgment is decisive. But there is also authority, which coheres better with principle, that active adjudication of the substantive issues is required. As has been said: 32 a decision on the merits is a decision which establishes certain facts as proved or not in dispute; states what are the relevant principles of law applicable to such facts; and expresses a conclusion with regard to the effect of applying those principles to the factual situation concerned. This suggests that active adjudication is required. But this begs the question of when such adjudication occurs. Presumably there is none if the foreign court merely approves the settlement simply because the parties 29

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Carl Zeiss Stiftung v Rayner and Keeler Ltd (No.2) [1967] 1 AC 853 (HL). See especially Lord Reid’s analysis at 918. Landhurst Leasing Plc v Marcq [1998] ILPr 822 (CA). Suggested in English law by Lord Diplock in The Sennar (No 2) [1985] 1 WLR 490, 494; see also, Jenkins v Robertson (1867) LR 1 Sc & Div 117 (HL Scot). Suggested by Lord Brandon in The Sennar (No 2), at 499.

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have asked it to do so. Nor would adjudication be involved if the foreign court has merely ensured that the settlement is procedurally sound (perhaps because all participating parties have consented), nor if it examines whether it represents the parties’ true consensus. Arguably, however, the test would be satisfied if the foreign court has examined whether the settlement represents an appropriate or proportionate outcome given the merits of the case. Such an examination does not amount to a decision on the merits, but it does involve consideration of the substance of the case. Importantly, the issues here are not merely technical. Considerations of public policy may properly be deployed to prevent recognition of a foreign order which is in principle res judicata. But it is unclear why a court should deny that an order has res judicata effect when it has that effect in the court of origin. Moreover, policy favours encouraging settlement, which entails ensuring that settlements are effective. It argues strongly against denying that an approved settlement has the effect of a judgment. More precisely, principle and authority suggest that a court-approved settlement should have the status of a judgment, at least where something more than certification of a private compromise is involved. Arguably, it should have such a status where the settlement forms part of a court-supervised procedure, or where the court’s approval follows a process of enquiry into the merits and the circumstances by which the settlement was reached.

6. Preclusion and Collective Judgments in the EU regime33 a) Problems Stated Distinct questions arise in the event that the recognition or enforcement of a collective judgment obtained in one EU Member State is sought in the courts of another such State. Three issues arise. First, when such recognition or enforcement is sought, what limits are imposed on the scope of national public policy by Article 34(1) of Regulation 44 / 2001? Secondly, to what extent may a non-participating class member avoid the preclusive effect of a collective judgment by invoking its lack of appearance under Article 34(2)? Thirdly, is a collective settlement to be treated as a judgment for the purposes of the EU regime? The first question involves the application of familiar 33

For practical purposes, ‘Brussels 1 bis’, the recast Brussels I Regulation, replicates the position under Regulation 44 / 2001, as described here. See, Regulation (EU) No 1215 / 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (recast), Articles 45, 46, re-establishing the present Articles 34 and 35.

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principles governing the effect of judgments within Regulation 44 / 2001. To that extent it does not require extended treatment in this context. But the second involves an issue of special relevance to collective redress. To what extent may an absent claimant in a class action rely on its non-appearance as a ‘defence’ to any attempt by a defendant to rely on the preclusive effect of a collective judgment? The third question also exposes an issue of special important in the field of collective redress.

b) Non-recognition and Public Policy When recognition of a collective judgment is sought, what limits are imposed on the scope of national public policy by Article 34(1) of Regulation 44 / 2001? This provides that a judgment shall not be recognised ‘if such recognition is manifestly contrary to public policy in the Member State in which recognition is sought’. The question here is not particular to collective redress.34 It involves the application of familiar principles to the particular context of collective proceedings. Particular issues arise because collective proceedings are exposed to the charge that they are procedurally unfair, at least when applied to absent claimants in an opt-out system. In the European context the issue is whether the policy objections identified above – procedural injustice; the indefeasibility of claims – meet the strict EU standard for non-recognition imposed by the Court of Justice.35 The question, which can be answered only in the circumstances of particular cases, and by reference to the approach of individual legal systems, is whether any objections founded in national law reflect principles regarded as fundamental in the state where recognition is sought, rooted in Article 6 of the European Convention on Human Rights.36

c) Non-recognition and Due Notice To what extent may a non-participating class member avoid the preclusive effect of a collective judgment by invoking its lack of appearance under Article 34(2)? This permits a party to resist recognition where a judgment is obtained in default of that party’s appearance. Article 34 (2) states that a 34

35

36

For general discussion see, Fentiman, International Commercial Litigation (2010), [18.40] ff. See further, Case C-7 / 98 Krombach v Bamberski [2000] ECR I-1395; Case C-38 / 98 Renault v Maxicar SpA [2000] ECR I-02973. Case C-7 / 98 Krombach v Bamberski [2000] ECR I-1395, at [25].

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judgment shall not be recognised where it was given in default of appearance, if the defendant was not served with the document which instituted the proceedings or with an equivalent document in sufficient time and in such a way as to enable him to arrange for his defence, unless the defendant failed to commence proceedings to challenge the judgment when it was possible for him to do so. If this ‘defence’ is invoked by an absent claimant, in response to the defendant’s reliance on a judgment’s preclusive effect, questions will arise as to whether due notice of the proceedings was given. These cannot be answered in the abstract. The answer will depend on the circumstances of particular cases, and will inevitably differ depending on the procedures employed in the court of origin. It is possible, for example, that even an absent defendant in an opt-out model will be regarded as having due notice if given the opportunity to participate at each stage of the process, but not if given notice merely at the outset. A more fundamental question, however, to which no easy answer exists, is whether an absent claimant may rely upon Article 34 at all. Article 34 offers possible defences to a ‘defendant’. Does this include a claimant against whom a defendant raises the preclusive effect of a foreign judgment? The wording does not readily fit the circumstances of a non-participating class member, and the effect of Article 34(2) has yet to be tested in that context. But principle suggests that any party who might be prejudiced by recognition of a foreign judgment should be entitled to rely on the Regulation’s defences to recognition.

d) Preclusion and Collective Settlements Importantly, considerable uncertainty surrounds whether a court-approved settlement can be recognized as a judgment within the Regulation. More precisely, although the position regarding the enforcement of settlements is clear, the position regarding their preclusive effect is not. The starting place is Article 58 of the Regulation, which equates court-approved settlements with authentic instruments and permits their enforcement on the same basis. Article 58 states: A settlement which has been approved by a court in the course of proceedings and is enforceable in the Member State in which it was concluded shall be enforceable in the State addressed under the same conditions as authentic instruments. The court or competent authority of a Member State where a court settlement was approved shall issue, at the request of any interested party, a certificate using the standard form in Annex V to this Regulation. 102

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This position is replicated in Article 2(b) of the recast Regulation, which provides that a court settlement (which has the same effect as an authentic instrument) is one ‘which has been approved by a court or concluded before a court in the course of proceedings’.37 To similar effect, court-approved settlements are given legal effect in Regulation 805 / 2004, the EU regime governing the enforcement of uncontested claims. For this purpose a claim is uncontested if the debtor has consented to a court-approved settlement.38 Article 24 of Regulation 805 / 2004, headed ‘Court settlements’, provides: 1. A settlement concerning a claim within the meaning of Article 4(2) which has been approved by a court or concluded before a court in the course of proceedings and is enforceable in the Member State in which it was approved or concluded shall, upon application to the court that approved it or before which it was concluded, be certified as a European Enforcement Order using the standard form in Annex II. 2. A settlement which has been certified as a European Enforcement Order in the Member State of origin shall be enforced in the other Member States without the need for a declaration of enforceability and without any possibility of opposing its enforceability. Importantly, however, Article 58, like Article 24 of Regulation 44 / 2004, is concerned only with enforcement not recognition, and so does not cover directly the preclusive effect of settlements. The question therefore remains whether a settlement is to have the status of a judgment and is thus subject to the Regulation’s recognition regime. Although the matter is not specifically addressed in these provisions they imply nonetheless that within the scheme of the Regulation court approval confers legal effect on a settlement. They concern the enforcement of monetary claims. It would be strange, however, if a court-approved settlement is regarded as having positive legal effect for the purposes of the enforcement of a judgment debt, but not as having negative legal effect for the purposes of recognition. An immediate difficulty which might prevent the extension of the concept of a judgment to a court-approved settlement is textual. The definition of a judgment in Article 32, which itemizes the instruments covered by the definition, conspicuously omits any reference to court-approved settlements. Again, Article 58 expressly embraces court-approved settlements, 37

38

Endorsed in substance by the Report of the Civil Council of 1 June 2012: JUSTCIV 209, 1.6.12. Regulation (EC) No 805 / 2004 creating a European Enforcement Order for uncontested claims.

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but in a way which might appear to deny them the status of judgments, and so exclude settlements from the Regulation’s recognition regime in Articles 33 to 37. Both arguments may be answered. First, the wording of Article 32 may not in fact omit reference to court-approved settlements. Article 32 extends to any order of a court, which presumably includes an order approving a settlement. Secondly, and more importantly, Article 58 equates settlements with authentic instruments because it regards both as private acts which are given legal effect by a process of certification. The authentic instruments to which it refers are typically private agreements given legal effect by notarial certification. Similarly, the court-approved settlements to which it refers are presumably those agreed by the parties but ‘certified’ by the court without any element of adjudication. The relevant image is of a privately negotiated compromise, embodied in a document which is brought before a court for endorsement. As this suggests, however, the structure and wording of the Regulation leaves open the possibility that a settlement achieved in the course of court-supervised proceedings, or which is approved by a court following enquiry and investigation of the issues, may qualify as a judgment. The conclusion that court approval should confer the status of a judgment on a settlement for the purpose of recognition is reinforced by principle and case law. It is apparent that a purely contractual settlement of proceedings inter partes has no legal effect within the Regulation. In Solo Kleinmotoren GmbH v Emilio Boch39 the Court of Justice held that Article 27(3) of the 1968 Brussels Convention, precursor to Regulation 44 / 2001, is to be interpreted so that an enforceable settlement reached in proceedings before the courts of a Member State is not a judgment within the meaning of that provision, and has no preclusive effect in another Member State. As Boch confirms, there is a difference between the operation of Article 25 of the Convention, which involved defining a judgment, and the operation Articles 50 and 51,40 concerning authentic instruments and court settlements. Arguably, however, an approved settlement in the form of a judgment by consent will be treated as a judgment having preclusive effect. The Boch decision is generally assumed to apply only to cases where a court merely approves a settlement without exercising any judicial function.41 But Boch should not apply in principle to a consent order in which the court has verified the legal and factual basis of the decision, or in which the parties have conceded the contentious issues on which the settlement depends. The 39 40 41

Case C-414 / 92. Articles 57 and 58 of Regulation 44 / 2001. Confirmed in the French jurisprudence: see, Cass RCDIP 87 (1998), 326 & Clunet 124 (1997) 1026; CA Paris [1999] ILPr 386.

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point arose in the English case of Landhurst Leasing Plc v Marcq,42 where it was held that a Belgian consent order had the effect of a judgment. As Beldam L.J. said, ‘A judgment entered by consent or in default is nonetheless a judgment.’43 The scope of the decision in Boch remains, however, uncertain, and the matter has yet to be determined finally in the Court of Justice. And even if certain court-approved settlements might qualify as judgments it is unclear whether these would include those obtained in collective actions. What of an approved settlement in a representative class action, in which the outcome in the lead action purports to bind non-participants? Would the court’s order exhibit the necessary consideration or verification of the issues in relation to non-participants? But would it be feasible to adopt a procedure where this occurred? Such difficulties remain unresolved, and any solution will depend on the precise nature of the review provided in any particular procedure for collective redress.

7. Conclusions Three observations may be offered in conclusion. The first is practical. The second and third concern issues of principle.

a) The Recognition of Foreign Settlements Particular attention must be paid to the recognition of court-approved settlements. Litigation is in practice, and in principle should be, a process whereby the parties settle their differences by agreement, thereby minimising the cost and inefficiency of litigation. The complexity and expense of class actions ensures that litigants are especially likely to prefer a negotiated outcome. Indeed, it is common for settlement to occur before any class is certified, so that the certification process involves both the approval of the settlement, and a decision as which claimants are parties to it. Defendants in particular may be more ready than otherwise to settle, given the enhanced bargaining power which claimants enjoy by virtue of numbers. There is also a particular incentive to settle in cases involving foreign class members. A defendant faced with claimants from several jurisdictions may prefer to settle rather than defend proceedings in several countries.

42 43

[1998] ILPr 822 (CA). At 832.

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Settlement is not only, however, a desirable outcome. It is the characteristic means by which collective redress is obtained. But the value of any settlement is undermined, and the parties may be discouraged from settling at all, if it has no preclusive effect. As we have seen, however, principle and authority suggest that a court-approved settlement should have the status of a judgment, a conclusion implicitly supported by the terms of Regulation 44 / 2001. More precisely, it should have this effect where the settlement forms part of a court-supervised procedure, or where the court’s approval follows a process of enquiry into the merits and the circumstances by which the settlement was reached.

b) Remission to National Law The effectiveness of foreign collective judgments is properly a matter for national law. The preconditions for recognition and enforcement do not easily lend themselves to harmonization. Nor is it appropriate – as might be suggested in the EU context – to remove from national courts the power to regulate such judgments. Collective judgments are generally denied effect because of legitimate concerns about the procedural fairness of collective proceedings. Denying effect to such judgments involves achieving a balance between considerations of procedural fairness and efficiency, and between the due process rights traditionally enforced by the rules for recognition and enforcement and the wider goal of access to justice served by collective redress. Such a nuanced balancing of competing interests is difficult, and states may legitimately differ as to where the lines should be drawn. Not only is the possibility of harmonization in such circumstances remote, but it would be inappropriate to remove such matters entirely from the scope of national law. It is instructive here to recall one aspect of the debate which preceded agreement on a recast Brussels 1 Regulation concerning the future of the exequatur procedure within the EU. The Commission’s original proposal was to abolish both that procedure, and also (substantially) the grounds for non-recognition in a receiving state. Tellingly, however, this would not have applied to collective judgments, in respect of which the public policy of the receiving state might still have prevailed.44 44

Article 37(3)(b) of the draft contained in the Commission Proposal of 14 December 2010: Proposal for a Regulation of the European Parliament and of the Council on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (Recast), Brussels 14.10.2010. The procedure has been abolished, but the existing defences to recognition and enforcement are retained.

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c) The Problem of Collective Justice It is apparent that the existing rules governing recognition and enforcement pose significant obstacles to the effectiveness of collective judgments. But what is the nature of the problem? Does the problem of effectiveness concern the law on recognition and enforcement, or the law on collective redress? It is tempting, certainly for private international lawyers, to see the problem as one concerning the procedures for collective redress in the court of origin. The obstacles to recognition and enforcement are largely matters of procedural fairness, which it is the task of the law on recognition and enforcement to uphold. The best way to overcome them is to ensure that the processes for securing collective redress are unimpeachable. Those who subscribe to this view may insist that there must always be limits to collective redress. Whatever merits it may have – enhancing the positions of weaker claimants; giving defendants closure when faced with multiple claims – these cannot be promoted at the expense of fairness. The collective nature of such procedures is its virtue, but the extent to which they purport to bind non-parties may be its vice – as the cases on recognition and enforcement clearly show. But this is an unsophisticated view. What is involved is not simply a conflict between procedural justice (embodied in the rules for recognition and enforcement), and efficiency (reflected in procedures for collective redress). What is involved is rather a difference between different conceptions of procedural justice. The provision of effective procedures for collective redress involves a compromise between traditional conceptions of due process, as expressed in the rules governing the recognition and enforcement of foreign judgments, and wider conceptions of procedural justice. It involves, for example, measuring the apparent unfairness of binding a non-participating class member, against both the enhanced access to justice afforded to claimants in general by such procedures, and the protection from multiple litigation that such procedures offer to defendants. At the very least, it is important not to discount those studies which have concluded that opt-in systems create significant barriers to redress for some potential claimants, notably those with low value / high volume claims.45 Again, it is far from self-evident that the balance of justice favours a non-participating claimant in an opt-out class action, who wishes to bring an individual claim notwithstanding that a cognate class action has concluded. It is simplistic to insist upon an individual’s right to seek redress 45

Improving Access to Justice by Collective Actions, Civil Justice Council (December 2008).

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without considering the unfairness to a defendant who is thereby exposed to perhaps numerous additional claims, which are in substance identical, at least in cases where all reasonable steps were taken to give notice to the class. Moreover, it is important to consider alternative ways to argue for the fairness of holding a non-participating class member to any judgment in favour of the class. Concern often centres on the difficulty of saying that such non-participants have consented to proceedings through inaction, or have submitted to the court’s jurisdiction. But the difficulty of finding consent may be misleading. Arguably, the justification for enforcing a collective judgment even against non-participants is not consent but estoppel. What matters is not whether they have consented to the proceedings, it is whether they can later object to any judgment when they had proper notice and the opportunity to opt out. Inaction may not amount to consent, but it may still have legal consequences.46 Such a nuanced approach is exemplified by the approach of the Dutch courts. As is well-known, Dutch domestic law provides for collective redress using an opt-out model resembling that available in the United States.47 This endorsement of such an approach, subject to proper safeguards concerning the giving of notice to non-participants, is echoed in the response of the Dutch courts to US class action judgments. As a prominent decision makes clear, involving a US securities class action against a Dutch company, these have preclusive effect against non-participants, provided that in any case the safeguards concerning due notice have been complied with. In June 2010 the Amsterdam District Court recognised a judgment by a US court in Maryland court approving a worldwide class action settlement in proceedings against Koninklijke Ahold NV (Royal Ahold), a Dutch company.48 In a class action brought by a number of investors, relating to losses allegedly incurred as a result of serious accounting irregularities, Royal Ahold had agreed to pay US $ 1.1 billion into a settlement fund, to be distributed amongst investors constituting the class. The effect of the Dutch court’s decision was to confirm the settlement’s preclusive effect against a number of Dutch class members who had not opted-out of the Maryland proceedings. The Dutch court found that the rights of the non-participants were in principle protected in the US class action procedure, given that they could 46

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On the difficulty of arguing that non-participation constitutes consent see, eg, Eisenberg / Miller, ‘The Role of Opt-Outs and Objectors in Class Action Litigation: Theoretical and Empirical Issues’, 57 Vand LR 1529 (2004). Civil Code, art 907; Weber / van Boom ‘Dutch Treat: The Dutch Collective Settlement of Mass Damage Act (WCAM 2005), Contratto e Impresa Europa, 69. Jurisprudentie Ondernemingsrecht, 2010, 225, Amsterdam Court of Appeal, 23 June 2010.

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object to, and opt-out of, any collective settlement. Moreover, on the facts, they had due notice of their right to opt out, and sufficient opportunity to do so. All known investors had been informed of the action, and numerous announcements had been made in Dutch newspapers. The Maryland judgment would not have preclusive effect, however, against any investor who could establish that those safeguards had not been complied with in their case. An opt-out system may indeed be exposed to the risk of injustice to a party without proper notice, which a court must be astute to avoid. But injustice is not inherent in such a procedure. The task for the enforcing court is not to prevent the preclusive effect of all such class actions, but to respond to any non-participants who rely on want of notice in their defence. The possibility that traditional concerns about the fairness of opt-out class actions may need further inspection has particular resonance for private international lawyers. Not all foreign judgments are effective elsewhere. The courts of one country may legitimately, if exceptionally, deny effect to judgments which infringe fundamental conceptions of public policy and human rights. But the principle of comity ordains that such denial must be circumspect, and it is established that such denial is not justified merely because the law of the receiving state differs from that of the state of origin. In this light, it is unclear that a collective judgment should be denied effect against a non-participating class member when there are at least legitimate reasons, founded on a defensible conception of procedural justice, in support of such a procedure. As this suggests, the traditional principles governing recognition and enforcement may be insufficiently nuanced to accommodate the special circumstances of collective redress. It is not for private international lawyers to place the onus on legislators in the court of origin to mould their domestic procedures to suit traditional conceptions of due process. It is instead incumbent on private international lawyers to debate what kind of procedural justice their rules should enforce. The important question is not how the traditional rules for recognition and enforcement apply to collective judgments; it is whether those rules are fit for purpose in a world of collective legal procedures, and collective conceptions of procedural justice. It is certainly an inadequate response to the effectiveness of foreign collective judgments to assert unreflectively that the collective procedures employed in opt-out systems are self-evidently illegitimate. For such reasons it cannot simply be said that the traditional rules on recognition and enforcement inevitably put the effectiveness of collective judgments at risk. There is a debate to be had about whether those rules are appropriate. But this conclusion is important not merely for private international lawyers concerned with the effect of foreign judgments. It is also a 109

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signal to those who favour enhanced procedures for collective redress that the rules for recognition and enforcement are not the inevitable obstacle to such initiatives that might be supposed.

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European Class Actions and Applicable Law Ralf Michaels 1. Introduction a) Problem and Discussion in the EU Cross-border class actions1 raise, by their very nature, problems of private international law. Of the three areas of private international law – jurisdiction, applicable law, and recognition and enforcement of foreign judgments – the first one, jurisdiction, has so far garnered the most attention, though recognition and enforcement of judgments are also being increasingly discussed. By contrast, the second area, choice of law, has been largely ignored in Europe.2 This is so although the 2008 Green Paper on Consumer 1 2

In this chapter, I confi ne my analysis of applicable law questions to class actions. The only pieces devoted exclusively and comprehensively to choice of law that I am aware of are Astrid Stadler, Confl icts of Laws in Multinational Collective Actions – A Judicial Nightmare?, in: Duncan Fairgrieve / Eva Lein (eds.), Extraterritoriality and Collective Redress, 2012, pp. 191 ff (cited as Stadler, Nightmare); Lorna Gillies, Determining the Applicable Law for Breach of Competition Claims in the Rome II Regulation and the Need for Effective Consumer Collective Redress, in: M Kenny and J Devenney (eds.), European Consumer Protection: Theory and Practice, 2012, pp. 257 ff.; Laura Carballo Piñeiro, Las aciones colectivas y su eficacia extraterritorial – Problemas de recepción y transplante de las class actions in Europa (2009) 187-207 with a review by Mathias Lehmann, RabelsZ 76 (2012) pp. 458 ff., at 461-62; Occasional discussions of choice of law include Peter Rott, CrossBorder Collective Damage Actions in the EU, in Hans-Wolfgang Micklitz / Fabrizio Cafaggi (eds.), New Frontiers of Consumer Protection, 2009, pp. 384 ff., at 390-93; Hélène van Lith, The Dutch Collective Settlements Act and Private International Law: Aspecten van Internationaal Privaatrecht in de WCAM, 2011, pp. 137-49, 159; Dimitrios-Panagiotis L. Tzakas, Effective Collective Redress in Antitrust and Consumer Protection Matters: A Panacea or a Chimera?, (2011) 48 Common Market Law Review (CMLR), pp. 1125 ff., at 1168-74; Eva Lein, Jurisdiction and Applicable Law, in Cross-Border Mass Litigation, in: Fausto Pocar / Ilaria Viarengo / Francesca Clara Villata (eds.), Recasting Brussels I, 2012, pp. 159 ff., at 166-72; Zheng Sophia Tang, Consumer Collective Redress in European Private International Law,

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Redress devoted two paragraphs to the issue, laying out several possible rules.3 The 2011 Commission Staff Working Document suggested that “the Commission has not received indications from stakeholders about practical problems” in the area of private international law and asked whether special rules on applicable law were required.4 Although responses from stakeholders were not consistent, the European Parliament, in 2012, suggested

3

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(2011) 7 Journal of Private International Law (JPIL), pp. 101 ff., at 138-40, 143-45; Michael Stürner, Grenzüberschreitender kollektiver Rechtsschutz in der EU – internationalverfahrensrechtliche und kollisionsrechtliche Probleme, in: Christoph Brömmelmeyer (ed.), Die EU-Sammelklage – Status und Perspektiven, 2013, pp. 109 ff., sec. III. See also Stefania Bariatti, Le azioni collettive dell’art. 140 bis del codice del consumo: aspetti di diritto internazionale privato e processuale, Rivista di diritto internazionale privato e processuale 2011, pp. 19 ff. at pp. 38-48. Green Paper on Consumer Collective Redress, COM(2008) 794 fi nal, Nos. 59-60: 59. In mass cases where consumers come from different Member States, the court would have to apply to contractual obligations the different national laws of the various consumers (Art. 6 Rome I Regulation). Th is would cause practical problems in cases with consumers from many different Member States. A solution would be to introduce an amendment to the rules imposing the law of the trader in collective redress cases. Other options are the application of the law of the market most affected or of the Member State where the representative entity is established. 60. In similar situations in the area of product liability (Art. 5 Rome II Regulation42) a choice of law agreement after the damaging event occurred (Art. 14 (1a) Rome II Regulation) would help. Commission Staff Working Document. Public Consultation: Towards a Coherent European Approach to Collective Redress, SEC(2011)173 fi nal, pp. 11-12: In an internal market for business and consumers, the rules on European civil procedural law and on applicable law should work efficiently in practice for collective actions (whether injunctive or compensatory), and judgements should be enforceable throughout the EU. The question therefore arises whether the current European rules on jurisdiction, recognition and enforcement of judgments, and applicable law sufficiently achieve that objective or whether a coherent European approach to (injunctive and / or compensatory) collective redress would require specific additional rules on applicable law and / or jurisdiction. So far, the Commission has not received indications from stakeholders about practical problems in this area. It is therefore the objective of this public consultation to seek views and information about possible specific challenges with regard to jurisdictional and applicable law issues related to collective redress, taking into account the current divergence of national legal systems notably as regards compensatory collective redress, the need for effective cross-border enforcement and the need to avoid abusive litigation, including “forum shopping”.

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a specific choice-of-law rule: application of the law of the place where the majority of the victims are domiciled.5 The Commission, in its 2013 Recommendation, was not convinced. It argued that such a rule would “lead to uncertainty when this is not the law of the country of the person claiming damages,” and suggested sticking to the existing choice-of-law framework.6 As concerns claimants from different states, it recommended only that rules on admissibility or standing not stand in the way, but said nothing about private international law.7

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European Parliament, Committee on Legal Affairs, Report on ‘Towards a Coherent European Approach to Collective Redress’ (2011 / 2089(INI) (Reporter: KlausHeiner Lehne), 12 Jan 2012, A7-0012 / 2012, no. 27: [The European Parliament] Calls for further examination of how the conflict-oflaw rules might be amended; believes that one solution could be to apply the law of the place where the majority of the victims are domiciled, bearing in mind that individual victims should remain free not to pursue the opt-in collective action but instead to seek redress individually in accordance with the general rules of private international law laid down in the Brussels I, Rome I and Rome II regulations; Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions: “Towards a European Horizontal Framework for Collective Redress”, COM(2013) 401 / 2, sec. 3.7, p. 14: Finally, some stakeholders raised the problem that, under the EU’s current confl ict of law rules, a court to which a collective dispute is submitted in a case involving claimants from several Member States would sometimes have to apply several different laws to the substance of the claim. The general rule for tort cases is that the law applicable for the obligations arising out of tort is the law of the country in which the event giving rise to the damage occurred. In tort cases concerning product liability, the law is determined by the habitual residence of the person sustaining the damage. Furthermore, for cases on unfair competition, the law applicable is the law of the country where competitive relations or the collective interests of consumers are or are likely to be affected. Admittedly, there can be situations where the conflict of law rules can render cross-border litigation complex, in particular if the court has to apply several compensation laws to each group of persons sustaining the damage. However, the Commission is not so far persuaded that it would be appropriate to introduce a specific rule for collective claims which would require the court to apply a single law to a case. This could lead to uncertainty when this is not the law of the country of the person claiming damages. Commission Recommendation of 11 June 2013 on common principles for injunctive and compensatory collective redress mechanisms in the Member States concerning violations of rights granted under Union Law, C(2013) 3539 / 3 no 17:

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Such relative neglect of choice of law is a mistake, both practically and theoretically.8 The practical problem should be obvious. If multiple laws apply, a class action becomes much more difficult to administer. If only one law applies, on the other hand, some plaintiffs may lose the protection of their home laws which private international law normally provides for; defendants may find their expectations as to the applicable standards of conduct thwarted. These practical problems are emblematic of a theoretical problem, which is perhaps the greatest theoretical problem for private international law today.9 Almost all of our choice-of-law rules were designed for twoparty relations, not for collective redress.10 Their underlying assumption is that legal relations have a “seat”, that they are so closely related to one legal order that applying that order’s law is possible, or that one state’s regulatory interests can be viewed as either including or trumping those of other states. But with Europeanization and globalization, many problems transcend boundaries in novel ways – they are global or European problems, not merely bi- or trilateral problems. This poses challenges not just for the existing rules of private international law, but for the very approach that underlies most of them. It will therefore be necessary to think also about a different approach to choice of law altogether.

b) The US Comparison To this purpose, the European debate can learn from looking at experiences in the United States.11 In the United States, choice of law was long considered of secondary importance for collective redress, too. In recent years, however, the topic has come to the fore in several symposia and publications. This means that the vibrant US debate can foster three things for the

8 9

10 11

The Member States should ensure that where a dispute concerns natural or legal persons from several Member States, a single collective action in a single forum is not prevented by national rules on admissibility or standing of the foreign groups of claimants or the representative entities originating from other national legal systems. Similarly Lein p. 172; Lehmann, RabelsZ 76 (2012) 461. See Ralf Michaels, Global Problems in Domestic Courts, in: Sam Muller et al. (eds.), The Law of the Future and the Future of Law, 2011, pp. 165 ff. Lein pp. 166-70. Similarly Astrid Stadler, Cross-border mass litigation: a particular challenge for European law, in: Jenny Steel / Willem H. van Boom, Mass Justice – Challenges of Representation and Distribution, 2011, pp. 73 ff, at 87.

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EU discussion – first, a sensitivity for the topic, second, experience in what problems can arise, and third, an array of suggested or attempted solutions to these problems. At the same time, US solutions cannot merely be transposed to Europe. Three important groups of differences exist between the US and the EU situation.12 The first group concerns the well-known differences among collective redress regimes. The most important difference in this regard is that collective redress in the US aims especially at regulation, whereas in Europe it is aimed more at compensation. This difference can explain, for example, the preference for an opt-in over an opt-out model in Europe. But the difference should not be overestimated. Not only do compensation and regulation go hand in hand. Moreover, regulation is one of the goals also of European collective redress.13 A second group of differences concerns choice of law. On the one hand, methodological approaches to choice of law in the United States still different in important regards from those in Europe.14 In particular, the idea that choice of law is not merely formal and technical is still more accepted in the US than in Europe. On the other hand, however, and perhaps even more importantly for this topic, choice of law is europeanized in Europe, whereas most choice of law in the United States is the domain of individual States.15 This implies that, as a matter of fact, choice of law in Europe can more easily be used for overarching regulatory purposes than in the United States, because Europe-wide regulation is more easily possible. A third group of differences, finally, concerns substantive law. Contrary to widespread impressions, the substantive differences between EU member state laws are often less significant than those between states in the United

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For comparison, see also, most recently, Astrid Stadler, Class Actions in den USA als Vorbild für Europa?, in Christoph Brömmelmeyer (ed.), Die EU-Sammelklage – Status und Perspektiven, 2013, pp. 91 ff. See Stacie I. Strong, Regulatory Litigation in the European Union: Does the U.S. Class Action Have a New Analogue?, (2013) 88 Notre Dame Law Review, pp. 899 ff., at 957-58 and passim. On recent methodological developments, see Ralf Michaels, After the Revolution – Decline and Return of U.S. Confl ict of Laws, (2009) 11 Yearbook of Private International Law (Yb. PIL), pp. 11 ff. See Ralf Michaels, The New European Choice-of-Law Revolution, (2008) 82 Tulane Law Review, pp. 1607ff., at 1616ff.; Jürgen Basedow, Federal Choice of Law in Europe and the USA – A Comparative Account of Interstate Confl icts, (2008) 82 Tulane Law Review, pp. 2119 ff.

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States.16 This is so in particular because many of the important areas for which collective redress can play the greatest role, have either been harmonized – consumer contracts, product liability, for example – or even exist, to a significant degree, as primary EU law – in particular antitrust law. It is so also, however, because the explicit goal of EU law harmonization is to establish a common market. This suggests that EU rules on private international law must be viewed in relation to such a common market, too.

c) Structure of the Analysis The chapter is structured as follows. In section 2 I discuss the three problems that class actions try to resolve – consolidation, undercompensation, and underregulation – and discuss how these problems become harder in transnational cases. I suggest then to discuss the proper role of choice of law for these problems separately. In the following sections I do just that. In section 3 I show that diversity of laws could be a problem for the certification of a class, but that it should not bar certification unless the underlying conduct was not aimed at a European market. In section 4, I discuss questions of applicable law once a class has been certified. After discussing a number of existing proposals, I suggest that often application of the lex fori would be in accordance with both the purpose of the class action and some existing EU private international law rules. In section 5, I list all policy proposals that are made in this chapter.

2. Class Action and Applicable Law: Foundations Although choice of laws is (especially in Europe) usually considered in separation from substantive law, a proper analysis of choice can nonetheless not take place without consideration of substantive law principles. This is so in particualar for EU private international law, which can more openly serve regulatory purposes than could the private international law of individual member states.17 An analysis of choice of law in the context of class actions must therefore begin with an analysis of the policies behind class actions.

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See Ralf Michaels, American Law (United States), in: Jan Smits (ed.), Elgar Encyclopedia of Comparative Law, 2nd ed. 2012, pp. 75 ff. See Michaels, (2008) 82 Tulane Law Review, at 1622-24.

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a) Three Functions of Class Actions Our systems of civil procedure have, traditionally, been made for litigation between individual parties. They are thus not equipped for the special problems that arise when a large group of individuals suffers essentially similar injuries from the same conduct by one or several connected defendant. Three such problems can be identified. The first of these is the problem of litigation costs. Individual litigation is costly, and if multiple, essentially similar, claims have to be brought individually, the amalgam litigation costs are enormous. This creates only moderate challenges to defendants, who can essentially use the same defense in all cases.18 It does create considerable challenges, however, to individual plaintiffs, who may face higher litigation costs than their claims are actually worth. And it creates challenges to the judicial system at large that must cope with sometimes high numbers of essentially duplicative claims. It has been argued that this problem is less pressing in at least some European countries (like Germany), where even small claims can be brought efficiently. Even if this is so, there is a particular desire for small claims to improve the ratio between the value of the claim and the costs of bringing it. The second problem is a consequence of the first: undercompensation. Among a large number of victims, in almost all cases some will not bring their claims. Some individuals may not want to bring their claims, e.g. for discrimination, because they fear repression. Other victims will not bring even meritorious claims, because the costs of bringing them exceed the expected compensation – we speak of negative claim values. Other victims finally will bring claims, but will face an imbalance: Each individual claimant can only invest a limited amount in the litigation to make it worthwhile, whereas the defendant, in view of multiple claims requiring essentially the same defense, can invest far more. As a consequence, some claims will not be brought at all, others will be brought but not sufficiently funded. Plaintiffs thus recover less than what they would be entitled to. The third problem is related to the second; it is the problem of underregulation. If we presume that litigation also has a regulatory aspect, because the fear of having to pay damages deters defendants from undesirable conduct, then such regulation is reduced when plaintiffs are discouraged from pursuing their claims. As a consequence, the defendant’s conduct will be insufficiently deterred because the expected damages the defendant has to pay are lower than the actual costs of its conduct, leading to underregulation.

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David Rosenberg, What Plaintiffs Have and Defendants Don’t, (2000) 37 Harvard Journal on Legislation, pp. 393 ff.

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The class action is, potentially at least, an instrument to remedy all three of these problems. It remedies the problem of excessive litigation costs by bundling all claims into one litigation procedure, which avoids duplicative costs. An opt-in action makes it easier for plaintiffs to bring their claims. An opt-out action even virtually guarantees that all plaintiffs’ claims are considered, because few plaintiffs will typically opt out of a class. This cost reduction benefits in principle all parties and the court system. As a matter of fact, however, it benefits in particular plaintiffs, because it makes it more likely that litigation actually takes place. The class action remedies the problems of undercompensation and underregulation through two mechanisms. First, at least in an opt-out procedure, every victim’s claim is included in the litigation, making sure (at least in theory) that all injuries are compensated for. This means, in return, that the defendant has to internalize all costs of his conduct, meaning (again at least in theory) that he is deterred at the socially optimal level. Second, the class action, by concentrating all claims in one litigation, achieves greater equality between the parties: now the plaintiffs can, just like the defendant, combine their litigation expenses.

b) The Class Action and multiple potentially applicable laws What happens to these three functions in the case of a transboundary action? If the class members are domiciled in different countries, or if they suffered their losses in different countries, the possibility arises that their claims might be governed by different laws. In a transnational product liability case, there may be multiple marketing states and thus multiple applicable laws under Art. 5(1) Rome II Regulation19 or Articles 4, 5 of the Hague Products Liability Convention.20 Likewise, in a transnational prospectus liability case, the applicable law is determined by the place where the (purely financial) injury occurred (Art. 4(1) Rome II Regulation), and there can be several such places.21 The same can be true in a case of environmental damage crossing several countries, though here the plaintiff can also choose the law of the place where the event occurred (Art. 7 Rome II Regulation). A class action alleging anticompetitive behavior will be governed by the laws of the different affected markets (Art. 6 Rome II Regulation), unless the

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See Stadler, Nightmare, p. 161; Lein, p. 167. (Hague) Convention on the Law Applicable to Products Liability (2 October 1973). Lein, p. 167.

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specific requirements of Art. 6(3)(b) are met.22 Differences occur in contract law, too. In a transnational consumer class action, multiple laws may be applicable under Art. 6(1) Rome I Regulation. This is so even if all contracts are, as is frequently the case, subject to a choice-of-law clause designating the seller’s home state law as applicable, because each consumer retains protection from his or her home law under Art. 6(2)(2) Rome I Regulation.23 A single law will apply if the Common EU Sales Law is selected – which may, ironically, provide an additional reason why defendants might be unwilling to allow such choice. The potential multitude of applicable laws has consequences for the ability of class actions to resolve the three problems named before. As to the first problem that class actions try to resolve, the consolidation interest, a multitude of applicable law makes the litigation significantly more complex. This is not just a problem of administration. Recall that consolidation is justified only where the situation of all plaintiffs is sufficiently similar to treat all of them together. It could be argued that this is not the case when different plaintiffs’ claims are subject to different laws. Indeed, several member states’ procedural laws require, in order for a class to be certifiable, that there are similar questions of fact and law.24 In the European discussion, the problem is only occasionally recognized,25 though the argument has been made by stakeholders in the discussion.26 In the United States, by contrast, diversity of laws has been one of the most effective ways to oppose the certification of a nationwide, or even global, class of plaintiffs. The second problem – the optimal level of compensation – looks significantly more complex in a transnational case. If different laws are potentially applicable, the proper level of compensation might differ for different plaintiffs. Normally, in private international law, we do not worry too much about different plaintiffs recovering different amounts for essentialy similar injuries – we view this simply as a consequence of differences in law. For the cases that class actions have in mind, by contrast, such different treatment may be considered especially unjust. Where we face consequences from the exact same conduct – for example pollution from a plant that has 22

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See Gaetano Vitellino, Conflitti di leggi e di giurisdizioni in materia di azione inibitoria collettiva, in: Gabriella Venturini / Stefania Bariatti (eds.), Nuovi strumenti del diritto internazionale privato – Liber Fausto Pocar, 2009, pp. 985 ff., at 994. See Stadler, Nightmare, p. 161; Tang, (2011) 7 JPIL, pp. 139-40. See discussion below section 3. Tang, (2011) 7 JPIL, pp. 139-40. See eg the position by Allianz plc in the 2011 Consultation, response to Question 30, avaiable at http: // ec.europa.eu / competition / consultations / 2011_collective_re dress / allianz_se_en.pdf.

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spread over several countries – and where we may even litigate them in the same procedure, it seems quite desirable to submit all consequences to the same law.27 Similar considerations concern the question of underregulation. Different countries may assess the optimal level of deterrence differently; this can be an explanation for differences in law. If, as a consequence of private international law, a defendant’s conduct is now submitted to multiple laws, this means that the overall level of deterrence will be based on a combination of these multiple laws. Again, this is not an impossibility: in private international law we know that the same conduct may be subject to different laws at the same time, and that it may even be legal from the perspective of one and illegal from the perspective of another. However, the level of deterrence achieved by combining multiple laws becomes an effective compromise that may not be optimal for anyone. Say a certain conduct creates half of its effects in country A and half in country B. Say the conduct is legal in country A and illegal in country B. Now, if the law of country B can be applied to only half of the consequences of the conduct, it may well be that the conduct is not effectively deterred at all.

c) Existing Proposals What should be done about these problems? One possibility is of course not to change existing private international law rules. This is the proposal made by the Commission, in its 2013 Communication.28 The view that no specific choice-of-law rules are required is found in the literature as well.29 It reflects a view widely held among US conflict of laws scholars – that choice-of-law considerations should not be subordinated to considerations of procedural efficiency.30 In the United States, however, this view is closely connected to 27

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Cf. Edward H. Cooper, Aggregation and Choice of Law, (2008) 14 Roger Williams University Law Review (RWU L. Rev.), pp. 12 ff., 19-20. Above note 6. Eg Tzakas, (2011) 48 CMLR at 1173-74. See only Larry Kramer, Choice of Law in Complex Litigation, (1996) 71 New York University Law Review, pp. 547 ff.; Richard A. Nagareda, The Preexistence Principle and the Structure of the Class Action, (2003) 103 Columbia Law Review (Colum. L. Rev.), pp. 149 ff., 189-98; Richard A. Nagareda, Bootstrapping in Choice of Law After the Class Action Fairness Act, 74 University of Missouri-Kansas City Law Review (UMKC L. Rev.), pp. 661ff.; Louise Ellen Teitz, Complexity and Aggregation in the Choice of Law: An Introduction to the Landscape, (2009) 14 RWU L. Rev., pp. 1 ff, at 2-3.

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the idea that both choice of law rules (which are state law) and substantive laws reflect substantive choices by states that should not be undermined through procedural considerations. In the European Union, by contrast, choice of law is separated from the member states’ substantive laws, both formally (because much of it is EU law) and in its content. Here, the preference for leaving choice-of-law rules untouched seems to rest on weaker foundations. Indeed, others have proposed that special choice-of-law rules should be developed for collective redress. In the United States, two legislative proposals for special choice-of-law rules for class actions did not become law;31 the same has been true, so far at least, for proposals by the American Law Institute.32 Developments in Europe have so far been similar. The Commission, in its 2008 Green Paper, suggested a variety of possible bases for consumer contracts:33 A solution would be to introduce an amendment to the rules imposing the law of the trader in collective redress cases. Other options are the application of the law of the market most affected or of the Member State where the representative entity is established. For delictual claims, it suggested the parties could choose the applicable law pursuant to Art. 14(1)(a) Rome II Regulation.34 In the literature, we find proposals for the defendant’s home state law,35 the most-affected national market, or the lex fori.36 None of these proposals has been taken up, however. The problem of any such solution is that the consolidation interest on the one hand and the individual interests of the plaintiff-victims on the other really pull in opposite directions. Many of the relevant rules of private international law are based on the victim’s interest in application of her own law. In some areas – consumer contracts, employment contracts – this interest is considered so strong that it cannot even be waived. Consolidation through class actions exists also, predominantly, in the plaintiffs’ interest. It would mean, however, that at least some, possibly most, victims will have to 31

32 33 34 35 36

H.R. 2112, 106th Cong. (1st Sess. 1999) Sec. 1660; cf. Teitz, (2009) 14 RWU L. Rev. at 5-6. Teitz, (2009) 14 RWU L. Rev. at 6-8. Green Paper on Consumer Collective Redress, COM(2008) 794 fi nal, no. 59. Ibid., no 60. Thus, in tendency, Carballo Piñeiro, p. 205. Staff Working Paper appended to the White Paper on damages actions for breach of EC antitrust rules, COM(2008) 165 final.

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yield precisely this protection. Moreover, if consolidation can occur only at the defendant’s domicile, then effective legal redress would be unavailable where the defendant is domiciled in a non-EU state.37

d) The triple problem of private international law: In Europe, private international law is mostly discussed as a problem to be dealt with once a class has been certified. Only rarely do we find discussions of whether the private international law problem could even prevent certification of a class. In the United States, the opposite seems to be the case. Because choice of law matters so much for class certification, most discussions focus only on this aspect. But properly speaking, conflict of laws plays two distinct roles, as laid out in a recent US student note: In fact, we must confront two choice-of-law problems, stemming from choice of law’s two distinct roles in the class action context: choice of law as a procedural gatekeeper for certification and choice of law as the mechanism by which substantive regulatory authority is allocated between states.38 The statement does not match the European context exactly. First, choice of law, in the European context, is not primarily about allocating authority between states, and instead more about the protection of individuals. Second, the focus on regulation ignores compensation, which is a more prominent goal of European than of US law. Third, certification and application of law are not fully unrelated: one reason to make consolidation dependent on the choice-of-law question is to make sure that the class action can actually fulfill its cost-saving purpose. Nonetheless, the general suggestion appears sound. Choice of law should be looked at separately in the context of certification on the one hand, and determination of the actually applicable law on the other.

37 38

Tzakas, (2011) 48 CMLR at 1169. Genevieve G York-Erwin, The Choice-of-Law Problem(s) in the Class Action Context, (2009) New York University Law Review (NYU L. Rev.), pp. 1793 ff., at 1794, see also at 1810-11.

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aa) Consolidation of Claims

The first problem of private international law is class certification. Class actions require commonality of issues. Such commonality may arguably require applicability of the same law. If this is so, then it matters early on whether one or different laws apply to different victims’ claims. If the applicable law is the defendant’s home law, a class can combine different victims’ claims. If, by contrast, the applicable law is the plaintiff ’s home law, or the law of the place where the plaintiffs purchased a product, then diversity of laws would exist, and a class could not be certified. In an ironic way, choiceof-law rules made in order to protect plaintiffs would now work in their disfavor and prevent their chance to enforce their chance to enforce their rights through aclass action. Three solutions are possible. The first is to give up on the idea of transnational class actions for this situation. The second is to change choice-of-law rules for class actions and to find a different law applicable to all claims. The third is to dispense of the need of a single law being applicable for class certification.

bb) Regulation and Compensation

Once a class is certified, a second problem concerns which law, or laws, should apply to the claims. If a new choice-of-law rule is found just for class actions, this could mean, at least for some plaintiffs, that they would find a less beneficial law applicable to their claim than the one that would usually apply.39 The alternative – to stay with the law normally applicable – would retain that protection, but it would also make administration of the class action considerably harder. The remaining question is whether these problems could be dealt with through procedural means. In view of the three functions of class actions discussed earlier, it could be possible, in theory, to decouple, further, regulation and deterrence from compensation.40 It would be possible, on the one hand, to designate one law for regulatory purposes (i.e. the standard of conduct), and several laws for compensation. It would also be possible, for small claims, to focus only on disgorgement of profits and ignore compensation altogether (though such a procedure would more likely be public enforcement than a class action.) 39 40

Lehmann, RabelsZ 76 (2012), at 462. Cf. David Rosenberg, Decoupling Deterrence and Compensation Functions in Mass Tort Class Actions for Future Loss, 88 Va. L. Rev. 1871 (2002). See also Tzakas, (2011) 48 CMLR at 1173-74.

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But such a splitting up of what is a single action would not go well at least with a European understanding of law. Although considerations of regulation and of compensation may lead in somewhat different directions, they must in the end be treated together.

3. Class Certification a) Legal Background What exactly is the impact of diversity of applicable laws on class certification? No member state law appears to have an explicit rule, but that does not mean no problem can occur. In all legal systems that have rules for collective redress, some commonality is required, but the details differ. Some national laws require merely common issues, without more specification. This is the case, for example, in Finland.41 Others require that issues have commonalities in fact or law. This is the case in the UK,42 Austria,43 and Poland.44 The Swedish Group Proceedings Act explicitly requires that “group proceedings do not appear to be inappropriate owing to some claims of the members of the group, as regards grounds, differing substantially from other claims”45

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Finland: § 2(1) Class Action Act (“several persons have claims against the same defendant, based on the same or similar circumstances”) CPR, Part 19, r 19.10 (U.K.) (“the case management of claims which give rise to common or related issues of fact or law”). Oberster Gerichtshof (OGH), 31 May 2005, 3 Ob 275 / 04v, SZ 2005 / 47: “gleichartige, auf einem im Wesentlichen gleichartigen tatsächlichen Grund beruhende Ansprüche” (claims that are of similar type and rest on an essentially similar factual ground.). Cf Gregor Kodek, Collective Redress in Austria, (2009) 622 Annals of the American Association of Political and Social Science (Annals AAPSS), pp. 86 ff., at 91-92. Act on Group Litigaton Art. 1.1.: The Act shall concern judicial civil procedure in cases where the same type of claims are sought by at least 10 people, provided that either of the following requirements is fulfi lled: 1) claims have the same factual basis; or 2) claims have the same legal basis, and the crucial factual conditions justifying the claims are common for all the claims (this type of litigation shall henceforth be referred to as group litigation). Group Proceedings Act (Lag 2002:599 om grupprättegång), Section 8 No 2.

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Now the question arises whether such commonality requires that the same law applies to all claims. In Europe, this issue has not been discussed much. In the United States, by contrast, choice of law has become an important and powerful barrier against certifican of nationwide, or even global, classes. The requirement in the Federal Rules of Civil Procedure that there be “questions of law or fact common to the class”46 has been read, rather extensively, to preclude certification of a class of plaintiffs to whose claims different laws apply.47 This has led to a curious reversal of positions in actual litigation: All of a sudden, defendants do not (as they usually would) argue for applicability of their home law, but instead they suggest that each plaintiff should be able to rely on his or her home law.48 The reason should be clear: it is far more valuable to defendants to avoid class action than to avoid application of plaintiffs’ home laws in individual claims. Reform proposals have been unsuccesful so far. This shows how relevant this issue could be for Europe, too. Notably, the problem can be potentially even bigger in Europe than in the United States. In the US, foreign law need not be applied if there is a “false conflict” – that is, if the court finds that differences in laws do not reflect differences of policy, so that application of forum law also furthers the foreign lawmaker’s policies. In the European understanding of choice of law, such an argument is not available.

b) Only nationwide collective redress? The easiest solution to the choice-of-law problem would be to allow only national collective redress.49 In a case of Europe-wide financial fraud, for example, French victims could bring their own action, German victims would bring a separate action, and so on. Indeed, this seems to be the tacit assumption in some national laws for representative actions. For example, Art. L. 422-1 of the French Consumer Code establishes the right to sue of a “nationwide representative” without considering the possibility of transnational representation. The English rules on certification have also been read

46 47

48

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FRCP 23(a)(2). See the critical analysis by Elizabeth J. Cabraser, Just Choose: the Jurisprudential Necessity to Select a Single Governing Law for Mass Claims Arising from Nationally Mandated Consumer Goods and Services, (2009) 14 RWU L. Rev., pp. 29 ff. See Linda Silberman, Choice of Law in National Class Actions: Should CAFA Make a Difference?, (2009) 14 RWU L. Rev., pp. 54 ff., at 57-58. Thus e.g. Stürner, sec. III.1.

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to exclude certification of a class of plaintiffs whose claims are governed by different laws.50 Such limitation is not merey theoretical. In the Dexia litigation, the final settlement was explicitly restricted to Dutch victims; Belgian victims were excluded, not least because Belgian law provided for stronger protection.51 In that case, the number of non-Dutch plaintiffs was relatively negligeable compared to the size of the class. Such a solution is undesirable. It would mean that the functions of collective redress would be fulfilled less fully – there would be less consolidation (because each member state might have its separate proceedings), and the dangers of undercompensation and underregulation would remain strong. It would thus undermine the EU interest in effective enforcement of harmonized law, too. And it would undermine the EU policy to enable cross-border collective redress. Restricting classes domestically should only be the outcome if no other solution were possible.

c) A New Choice-of-Law Rule? An alternative solution would be to formulate a new choice of law rule specifically for class actions. This has been proposed as a solution in the United State,52 and also in Europe. Whether such a new choice-of-law rule is desirable for purposes of administrating an existing class litigation is the issue for the next section. For purposes of certification, a new choice-of-law rule appears both inadequate and unnecessary. It is inadequate because the creation of a new choice-of-law rule just for certification purposes would reverse the proper relationship between substantive law, including choice of law, on the one side, and procedure on the other. The idea of a class action is to group existing claims together so they can be more easily and fully litigated. If the claims themselves have to be changed for this purpose, then this idea is not fulfilled.

d) Certification Despite Potential Differences in Law A new choice-of-law rule is unnecessary because differences in law should not, in principle, be viewed as a barrier to the certification of a class. In 50

51 52

Tang, (2011) 7 JPIL, p. 139, referring to CPR, Part 19, r 19.10 (U.K.). Tang suggests the same might be true for Austria, but this sems wrong; see note 43 above. Van Lith, pp. 18-19, 39. See the references in York-Erwin, (2009) 84 NYU L. Rev., pp. 1814-17.

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the United States, the so-called Feinstein amendment to the Class Action Fairness Act suggested that choice of law should not matter for class certification: “[T]he district court shall not deny class certification, in whole or in part, on the ground that the law of more than [one] State will be applied.”53 The proposal was rejected, but it still finds support in the literature.54 In the European context, a similar argument can be made with even greater strength. The text of existing laws does not absolutely require commonality of applicable laws; such commonality is only one factor among others. Further, there appears to be no need to read the laws that do name such commonality as a requirement as extensively as US courts read Federal Rule 23(a)(2).55 But it als matters that substantive differences between laws, as was argued earlier, are often less significant among EU member states than among states of the US. We can distinguish between areas in which the law is harmonized and areas in which it is not. Certainly, sufficient commonality exists where what is being enforced is harmonized law. 56 The idea that harmonized law is in important ways to be treated as uniform law for purposes of choice of law is acknowledged in the area of party autonomy: parties cannot deviate from harmonized law if no connections to non-member states exist (Art 3(4) Rome I Regulation; Art. 14(3) Rome II Regulation). The same argument should also be available for class certification. Where a claim rests in important degrees on harmonized law, class certification should not be refused because different plaintiffs’ claims rest on different implementations of the same EU directive. This should help in a large number of areas of consumer law. But even where law is not harmonized it appears unwieldy to deny class certification merely because different laws might be applicable. If necessary, subclasses could be created, drawing on the model of the United States.57 Such sub classes are certainly possible, but they may be harder to implement 53 54 55 56

57

S. 5, 109th Cong. amend. 4, 151 Cong. Rec. S1215 (daily ed. Feb. 9, 2005). York-Erwin, (2009) 84 NYU L. Rev. at 1819-22. Similarly Stadler, Nightmare, pp. 211-12. Rott, p. 391; Stadler, Nightmare, p. 212 See already Ralf Michaels / Hans-Georg Kamann, Europäisches Verbraucherrecht und IPR, Juristenzeitung (JZ) 1997, pp. 601 ff., at 603-04. Stadler, Nightmare, p. 212-13; see also Ruud Herman & Jan de Bie Leuveling Tjeenk, International Class Action Settlements in the Netherlands since Converium, in:

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in the European context. In the US, it is possible to group plaintiffs under different laws together, as long as these laws create a false conflict amongst themselves. It is not certain that such grouping would be possible in Europe. But subclasses may not even be necessary in Europe very often. European courts are used to applying different laws within one litigation; it seems they should be able to do this in most class litigations, too. Diversity of laws as such should thus not be a barrier to certification of a class in Europe. But diversity of laws may be reflective of a lack of commonality of facts, and that could be relevant. Much depends on the details of each individual case, but as a rule of thumb the following may be true: where the claims are related to a Europe-wide marketing strategy, a Europe-wide class will typically be justified; where the marketing took place in country-specific ways, other reasons must exist to justify a transnational class. This factual restriction would guarantee that a Europe-wide class exists only where a Europe-wide market is impacted. It would also make it easier to argue for a single law to apply to the whole class, as will be discussed in the next section.

4. Applicable Law If diversity of laws is not a barrier to the certification of a transnational plaintiffs’ class, especially where the conduct in question concerns the European market, then the issue remains what law should apply to the plaintiffs’ claims. Should they be governed by different laws, thus complicating administration of the litigation? Should a single law be found to govern all claims, thereby potentially upsetting the policy choice made in choice of law? Or is another solution possible? It is sometimes suggested that most collective actions are settled and that therefore the question of the applicable law is comparably irrelevant.58 Experience with the Dutch WCAM experience appears to suggst as much. However, settlements are made, usually, in the shadow of the law, and that includes the shadow of choice of law. Without a clear choice-of-law regime, the foundations of a settlement are unsure.

58

The International Comparative Legal Guide to: Class & Group Actions 2012, pp. 5 ff., at 8. Stadler, Nightmare, p. 207.

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a) Application of different laws Most European scholars appear to share, implicitly, the view expressed by the Commission recently: new choice-of-law rules for collective redress are neither desirable nor necessary. Instead, it is suggested, litigation in which different plaintiffs’ claims are governed by different laws is unproblematic. In Sweden, the legislator’s assumption appears to have been that the ordinary rules on private international law apply.59 Admittedly, applying different laws to one litigation is nothing new in Europe. There is a situation in which even the claims of the same plaintiff are governed by different laws: the so-called Mosaikprinzip for tort actions. The idea, developed originally in the area of jurisdiction but extended to choice of law, is this: if the applicable law is the law of the place of the injury, then injuries suffered in different countries are subject to different laws. The 2003 proposal for the Rome II Regulation explicitly adopted the principle,60 which suggests that the Rome II Regulation should be read as implementing it.61 It must be acknowledged, however, that plaintiffs rarely rely on such a mosaic approach and prefer to recover their entire damages in one court and under one law when possible. Experience with the Dutch WCAM suggests the desire of plaintiffs’ representatives to keep plaintiffs out when their claims would be governed by different laws.62 Further, in the area of antitrust law, where the mosaic principle would in principle apply as well,63 the legislator has explicitly lessened its harshness with Art. 6(3)(b) Rome II Regulation.64 Here, the plaintiff can choose the defendant’s home law also for injuries suffered in other markets, provided the defendant’s home state is also the forum and a substantively affected market. This suggests that applicability of diverse laws is possible but undesirable. 59

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Sweden-National Report (2006), http: // www.juridicum.su.se / jurweb / forskning / publikationer_fi les / Sweden.pdf, p. 36, with reference to Prop. 2001 / 02:107, p. 51. Proposal for a Regulation of the Parliament and Council on the Law Applicable to non- Contractual Obligations (“Rome II”), COM(2003) 427 fi nal, p. 11. See the discussion in Alex Mills, The Application of Multiple Laws under the Rome II Regulations, in John Ahern / William Binchy, The Rome II Regulation on the Law Applicable to Non-contractual Obligations: A New International Litigation Regime; 2009, pp. 133 ff., at 134-36. See note 51 above. Eg Peter Mankowski, Das neue internationale Kartellrecht des Art. 6 Abs. 3 der Rom II-Verordnung, (2008) 54 Recht der internationalen Wirtschaft 177, 188. Peter Huber / Martin Illmer, Rome II Regulation: Pocket Commentary, 2010, Art. 6 no 116.

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Additional evidence for the lawmaker’s desire to avoid situations in which a multitude of laws applies can be found in Art. 4(1)(h) Rome I Regulation.65 The rule consolidates the laws applicable to various claims arising from transactions on financial markets.66 Notably, this designation of one single law trumps even the ordinary consumer protection of Art. 6 (Art. 6(4(e) Rome I Regulation). Outside of these cases, can escape clauses be a solution? Escape clauses enable application of an alternative law for both contracts (Art. 4(3) Rome I Regulation) and for torts (Art. 4(3) Rome II Regulation. But at least the existing escape clauses do not provide an answer. First, they require that the contract or tort is “manifestly more closely connected with a country other than that indicated in” the ordinary choice-of-law rules. That is not the case for class actions. The problem is not that the law determined through ordinary choice-of-law rules has little connection to the specific claims; the problem is that ordinary choice-of-aw rules designate more than one law. There is no one country that is “manifestly more closely connected.”67 Second, Art. 4(3) Rome I Regulation is trumped by the specific protection of consumers and employees in Articles 6(2)(2), 8(1)(2) Rome I Regulation. It cannot help, therefore, for the most important reasons for diversity of applicable laws.

b) Consolidation through Choice aa) Unanimous Choice

An easy way to achieve consolidation, anticipated already by the Green Paper,68 would be that the group and the defendant simply choose the applicable law prior to, or during the litigation. This is possible, under current law, for most tort claims (Art. 14(1)(a) Rome II Regulation.69 Art. 6(4) rules out this possibility for claims arising from unfair competition (Art. 6(4) Rome II Regulation),70 but not convincingly. If indeed the reason for the 65 66

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Van Lith, 145. See Art Bierman / Teun Struycken, Rome I on Contracts Concluded in Multilateral Systems’, Nederlands International Privaatrecht 2009, pp. 416 ff. Similarly, in result, Lein, pp. 169-70. Green Paper on Consumer Collective Redress, COM(2008) 794 fi nal, no. 60. See, in the context of collective redress, Van Lith, p. 143. Another exception from party autonomy, claims for infringement of intellectual property (Art. 8(3) Rome II Regulation), seems negligible for the class action context.

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exclusion of party autonomy for such claims was the fear that parties might try to evade mandatory rules,71 then the exclusion is overbroad especially where it includes consumer claims. Post-event choice has been proposed as a possibility also for consumer claims arising from contract – or, even further, to read a consumer’s opting into a collective actions as a waiver of her rights under her home laws.72 Under existing law, such post-event choice is not, prima facie, possible for consumer and employee contracts. In such contracts, protective rules of the consumer’s or employee’s home law remain applicable regardless of the choice (Articles 6(2)(2), 8(1)(2) Rome I Regulation.73 This curious result – party autonomy is in effect restricted more in contract law than in the law of delict – seems to be a bit of an accident. Presumably, the legislator of the Rome II figured that post-event choice does not present risks of unequal bargaining powers – an injured party would likely seek legal advice before agreeing to choose the applicable law. In Rome I, by contrast, party autonomy is generally restricted with no distinction being made between pre- and post-event choice, though the situation mainly envisaged was certainly that of pre-event choice. Post-event choice may be problematic in bilateral negotiations, because unequal bargaining powers and information asymmetries continue to exist. But the class actions sets out to overcome precisely these two. This suggests that such choice should be allowed for class actions. The risk that the consumer might unknowingly lose protections from her home state seems smaller than the risk that she, without that possibility, might not be able to participate in a cost-efficient class action at all.74 Moreover, the court may be able to refuse approval of a choice of law that is detrimental to some of the class members.75 However, unanimous choice may often be unachievable. Defendants suffer less from diversity of laws than do plaintiffs; they may therefore often have little incentive to agree to one common law to apply. Some plaintiffs, on the other hand, will lose if the law chosen grants them less protection

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Jonathan Fitchen, Choice of Law in International Claims Based on Restrictions of Competition: Article 6(3) of the Rome II Regulation’ (2009) 5 JPIL, pp. 337 ff., at 344. Carballo Piñeiro, p. 205. For the structure of these rules as actual choice of law rules, see Ralf Michaels, Die Struktur der kollisionsrechtlichen Durchsetzung einfach zwingender Normen, in Ralf Michaels / Dennis Solomon (eds.), Liber Amicorum Klaus Schurig, 2012, pp. 191 ff. See Stadler, Nightmare, 139. Stadler, Nightmare, 139.

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than their home law; they may thus have little incentive to opt into a class action, at least when significant amounts are at stake. More fundamentally, however, party choice cannot be a satisfactory solution to the choice-of-law problem. This is so not merely because party autonomy always happens in the shadow of the existing choice-of-law regime and is therefore influenced by it. It is true more fundamentally because the lawmaker cannot simply defer her duty to provide a functioning regime to the parties.

bb) Unilateral Choice

Even if the parties cannot agree on an applicable law, a single law can be found in situations in which the plaintiff is entitled to choose the applicable law unilaterally. This is the case, in particular, for environmental law, where plaintiffs can choose the law of the place of conduct (Art. 7 Rome II Regulation).76 Another area in which such choice is possible, albeit under more limiting requirements, is antitrust law. According to Article 6(3)(b) Rome II Regulation, in cartels affecting more than one country, the plaintiff can choose application of the law that combines the forum, the defendant’s domicile, and an affected market.77 On its face, the provision in its (somewhat clumsy) formulation is not applicable to class actions. It appears to require that the plaintiff suffered injuries in more than one market, whereas the issue in class actions is that several plaintiffs suffered their injuries each in a different market. Regardless of whether this is the correct literal interpretation, however, based on its aims the provision should clearly apply to the multinational class action, too. At present, therefore, the plaintiffs’ class ability to choose the applicable law unilaterally is quite restricted. For future law reform, however, it is worthwhile looking at the policies underlying the areas in which such a choice is possible. With regard to the law applicable to environmental damages, the explicit reason lies in the EU’s regulatory interest in a high level of environmental protection.78 The novelty of Art. 7 is not so much the idea of 76 77

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Lein, p. 168; Van Lith, p. 144. Elena Rodriguez Pineau, ‘Conflict of Laws Comes to the Rescue of Competition Law: The New Rome II Regulation’ (2009) 5 JPIL, pp. 311 ff., at 323-26; Stéphanie Francq / Wolfgang Wurmnest, International Antitrust Claims under the Rome II Regulation, in: Jürgen Basedow / Stéphanie Francq / Laurence Idot (eds.), International Antitrust Litigation: Confl ict of Laws and Coordination, 2012, pp. 91 ff., at 124-28. Rome II Regulation, recital 25; cf. EC Treaty Art. 174(2).

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using private international law for regulatory purposes, but the fact that the EU uses federalized private international law rules for the promotion of EU policies.79 Art. 7 could therefore serve as a good model for other areas where EU policies are to be promoted – as, especially, in class actions. Art. 6(3)(b) is even more clearly related to class actions. The rule is quite clearly a response to the problem of multistate cartels. In doing this, it goes further even than US law, where foreign plaintiffs have a hard time joining with US plaintiffs to sue under US antitrust law.80 Introduction of the rule weakens the argument that class actions do not deserve different choice of law rules than individual claims: the reason for a new rule does not lie in the procedural enforcement per se, but instead in the particular situation of multistate events that encourages class actions.

cc) Exercise of Choice

For both bilateral and unilateral choice, the question arises whether the class representative is entitled to declare that choice. In an opt-in class, one can read the opt-in declaration to include the representative’s power to choose the applicable law;81 ideally, this power should be made explicit in the opt-in agreement, but this does not seem necessary. In an opt-out model, the question is more complicated. It has been argued that a choice by the representative cannot bind absent class members, because that would be a choice to the detriment of third parties and thus would violate Arts. 3(2)(2) Rome I Regulation, 14(1).82 But this argument does not seem sound: the choice is made not to the detriment but in the name of those plaintiffs; the question is whether the representative has the power to bind these absent plaintiffs. Instead, the question of the extent to which the representative can make declarations that bind absent members is a question of her general powers and as such governed by the lex fori.

c) Consolidation through a new Choice-of-Law Rule The class action would be greatly simplified if a new choice-of-law rule could be found to determine the law applicable to each plaintiff ’s claims. I 79 80

81 82

Michaels, (2008) 82 Tulane L. Rev. 1623. See Hannah Buxbaum / Ralf Michaels, Jurisdiction and Choice of Law in International Antitrust Law – A U.S. Perspective, in: Basedow et al., pp. 225 ff., at 233-35. Lein 168, 169; Stadler, Nightmare, pp. 206-07. Stürner, sec. III.2.

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discuss several proposals for such a single law separately, before addressing common issues.

aa) Defendant’s incorporation law

A first possible law is the defendants home law.83 This is a familiar connecting factor, especially in contract law (see only Art. 4(1)(a), (b), (e), (f)) Rome I Regulation), but also, occasionally, in tort law (see Articles 5(1) last sentence, 6(2)(b) Rome II Regulation). At least where only one defendant is sued, this leads to application of only one law. (Where several defendants exist, Art. 6(2)(b) 2nd sentence still enables a common law for claims based on anticompetitive conduct.) But the defendant’s home law is questionable. Application of the defendant’s home state law creates the risk that defendant’s may deliberately incorporate (or choose their main place of business) in low-liability states,84 including states outside the EU that do not comply with the acquis communautaire. For good reasons, therefore, the Rome I Regulation lays down important, and non derogable, exceptions for specific contract types like consumer and employment contracts. Similarly, the Rome II Regulation looks to the place of the injury in part order to prevent such manipulations. Of course, in some cases, it may be more attractive for plaintiffs to pool their claims in a class action governed by the defendant’s home law than to bring them individually under the protection of their home laws. But that justifies a shift in choice-of-law rules only if there is no better way to make a class action possible.

bb) Market Most Affected

If one wants to establish a common law based on plaintiffs’ rather than the defendant’s interests, it would be possible to look the place where most of the victims are domiciled, as proposed by the European Parliament.85 A comparable appraoch, taking seriously the regulatory aspect of class ac83

84 85

Thus for the US Samuel Issacharoff, Settled Expectations in a World of Unsettled Law: Choice of Law After the Class Action Fairness Act, 106 Colum. L. Rev.. 1839, 1869 (2006). For Europe, this is considered by Stadler, Nightmare 209. See York-Erwin, (2009) 84 NYU L. Rev. 1815. European Parliament, Committee on Legal Affairs, Report on ‘Towards a Coherent European Approach to Collective Redress’ (2011 / 2089(INI) (Reporter: KlausHeiner Lehne), 12 Jan. 2012, A7-0012 / 2012, no 27.

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tions, would be to apply the law of the most-affected market.86 Especially for economic regulation, the affected market often provides a useful connecting factor.87 In most cases this will be the same law (because most consumers purchase their products and services at home.) The affected market is a basis for several rules of European private international law. The most obvious ones exist in tort law. Claims in product liability are explicitly governed by the law of the affected market (Art. 5(1) Rome II Regulation), as are claims for unfair competition and restriction of competition (Art. 6(1), 6(3)(a) Rome II Regulation). But even for other tort claims, the place of the (direct) injury in Art. 4(1) Rome II Regulation is, typically, the place of the market place. However, the market most affected will not necessarily provide a satisfactory connection. In cases in which the vast majority of injuries is suffered in this one market, this result could be justificable. If however, a large number of markets are affected and none of them alone combines a very large portion of the overall injury, it is not obvious why all claims from other countries (which, taken together, may make up far more) should be subject to that one law. Furthermore, such an approach is likely to prioritize the laws of big countries over those of small countries. Finally, the mostaffected market can sometimes be hard to determine (especially ex ante), leading to uncertainty about the applicable law, which is why the Commission was right to reject it.88 All of this is not to say that the affected market is not a good connecting factor, only that the most-affected market does not provide a good connection.

cc) “Average Law”

An alternative way of accounting for the affected markets has been proposed in the United States. Authors have suggested a substantive law solution they call “average law” and define as “the mean recovery value that

86

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Considered in Green Paper on Consumer Collective Redress, COM(2008) 794 final, no. 59. Dieter Martiny, Die Anknüpfung an den Markt, in: Jürgen Basedow et al (eds), Festschrift für Ulrich Drobnig zum 70. Geburtstag, 1998, pp. 389 ff. “Towards a European Horizontal Framework for Collective Redress” COM(2013) 401 / 2, sec. 3.7, p 14.

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would result from resolving all classed claims under their respectively governing state laws.”89 Average law has been rejected by the courts as a “kind of Esperanto”.90 That criticism seems exaggerated, at least for regulatory purposes. The authors rightly point out that this average law represents, from the perspective of the defendant, the exact aggregate of all severally applicable laws. The defendant has to pay exactly as much in compensation under average law as he would if each claim were governed by its own law. However, it is not clear that calculating the average law would be significantly simpler than applying all laws separately. 91 The main advantage of the proposal is that it enables, in the United States, to overcome the “commonality of law” hurdle for certifying a class action. But this hurdle should not exist in Europe at all, as was explained before.92 By contrast, whereas compensation is considered largely irrelevant in the US, in Europe, the proposal would mean that some plaintiffs will gain more, others less than they would under their home laws. Average law is therefore not a promising alternative.

dd) Place of Conduct

A neutral connecting factor, at least for actions grounded in tort, could be the place of conduct. (For contracts actions, a place of conduct that is distinct from the affected market is hard to determine.) The place of conduct has long been a frequent connecting factor for torts. It still exists for environmental torts, where the plaintiff can choose the law of the place of conduct (Art. 7 Rome II Regulation). In general, however, the Rome II Regulation explicitly rejected it (Art. 4(1)), and for good reason: the place of conduct does not have strong regulatory interest for cross-border torts.93 As a consequence, it is not inconceivable that defendants will deliberately pick a low-liability state for their conduct. The place of conduct would make

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Luke McCloud / David Rosenberg, A Solution to the Choice of Law Problem of Differing State Laws in Class Actions: Average Law, (2011) 79 George Washington Law Review (GW L. Rev.), pp. 374 ff., at 375. The idea had been considered, but rejected, in the American Law Institute’s promulgated Principles of the Law of Aggregate Litigation (2010) § 2.05 cmt b. In re Rhone-Poulenc Rorer, Inc., 51 F.3d 1293, 1300 (7th Cir. 1995). But see McCLoud / Rosenberg, (2011) 79 GW L. Rev., pp. 396-400. Above sec. 3.d). Andrew T Guzman, Choice of Law: New Foundations, (2002) 90 Georgetown Law Journal 883, 921-24.

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it possible to determine one law common to all claims, but that law would note necessarily be the proper law.

ee) General problems

There are, then, problems with all these proposals, though not all of them are similarly compelling. A first problem turns out to be rather less relevant than is often thought. It is sometimes argued that the policy decisions made by different states are undermined if their laws are not applied. This argument has found special attention in the US, 94 though it can also be found in the European debate. It has some strength in the US, where choice of law is a matter for the individual states themselves. In Europe, where choice of law in contract and tort has been Europeanized, the member states no longer determine the circumstances under which heir laws apply. But there is an even greater weakness of the argument for both the US and the EU: The idea that each state should get to set the laws and policies for its own state presumes that these interests are separable, that, in other words, each country’s lawmaker regulates that country’s national market. But transnational class actions frequently concern cases in which the relevant market is European rather than national. In the US, it has been discussed with some force that injuries created on nationwide markets are qualitatively different from injuries created on markets in the individual member states. This argument becomes even stronger in the European Union, which actively promotes a common market – and attempts, with the transnational class action, to create the proper litigation tool for this. The more relevant problem is a practical one. If only one law is applicable to the class litigation, this means that plaintiffs whose claims would otherwise be governed by a more favorable law may have little incentive to join the class. As a result, there would be both a class action brought by plaintiffs whose individual claims would be governed by less generous laws, and individual claims, or country-specific class actions, brought by plaintiffs from more generous states. This less than perfect result could be avoided in three situations: first, where the claims are so small that the class action is invariably more attractive than any national law; second, where differences between the different laws are relatively negligeable; third, where the class action is governed by the most generous of all the several laws.

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Larry Kramer, Choice of Law in Complex Litigation, (1996) 71 NYU L. Rev., pp. 547.

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d) Consolidation through Application of Lex Fori A specific kind of a new choice-of-law would be designation of the lex fori as applicable law.95 At the same time, lex fori is, indirectly, based on the plaintiff ’s unilateral choice: through choosing the forum (amongst those that have jurisdiction), the applicable law is chosen as well.

aa) Lex Fori in Existing EU Private International Law

While lex fori applies, in principle, to procedural matters, the forum is not a popular connecting factor in Europe to determine the applicable substantive law. Unlike in the US (and to some extent in England), where forum law is often viewed as the residual law, European private international law mostly tries to counter the “homeward trend” and establishes mostly forum-neutral choice-of-law rules. Nonetheless, the lex fori does play an important role that is relevant for class actions, too. The most obvious area where lex fori applies is, traditionally, public law. This could be relevant for class actions as well, where regulatory issues are at stake. But ultimately it is not: the idea is that states can apply their own regulatory law where they have a regulatory interest, and it is not clear that this is the case where plaintiffs from other states are involved The same should be true, in principle, for the consideration that courts are free to apply their own mandatory laws regardless of the otherwise applicable law (Art. 9(2) Rome I Regulation; Art. 16 Rome II Regulation). It may seem as though these provisions would enable courts to apply their own consumer protection laws even to the claims of foreign plaintiffs. But even if some such laws should be governed by Art. 9(2) Rome I Regulation and not only by Art. 6, the forum’s mandatory laws do not apply indiscriminately but only insofar as their scope of application goes, and this will mean in most cases only for the benefit of domestic plaintiffs. In reality, however, both courts and scholars have been laxer with this requirement. Instead, the most promising role for the lex fori lies in another, somewhat surprising area. When, in a pure intra-European case, the parties select the law of a non-EU state, mandatory EU law remains applicable, according to Art. 3(4) Rome I Regulation, Art. 14(3) Rome II Regulation. Where this law is based on an EU directive, this raises the question which national implementation should apply. The logical answer would be: the ap95

Jack B. Weinstein, Mass Tort Jurisdiction and Choice of Law in a Multinational World Communicating by Extraterrestrial Satellites, (2001) 37 Willamette Law Review, pp. 145 ff., 153-54.

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plicable implementation law is the law of that state whose law would apply in the absence of a choice.96 The EU lawmaker took a different decision: the applicable implementation is that of the forum. That had been the decision already in consumer directives (e.g. Art. 12(2) Timeshare Directive)97 and has now been generalized in Arts. 3(4) Rome I Regulation, Art. 14(3) Rome II Regulation. Designation of the forum has been criticized.98 but instead that of the forum. The idea behind this is that different implementations are subsitutable, and that, in such a case, ease of application (of forum law) can trump designation of the most adequate law.

bb) Lex Fori for Harmonized Law

This implicit determination of substitutability has consequences for the question of the applicable law. It suggests the following principle: Insofar as a class action rests on harmonized law, the plaintiffs’ representative should be allowed to choose the implemation of the forum for the claims of all plaintiffs, regardless of whether their claims would normally be governed by other laws. The justification lies in the nature of harmonization. Both harmonization of substantive law, protection of weaker parties in private international law, and the enabling of the transnational class action, have the same goals: to establish a functioning common market. This means, first, that the plaintiffs’ representative should be allowed to choose the applicable law even where such choice would be impossible for bilateral litigation. It means, second, that the lex fori implementation provides the easiest way 96

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Michaels / Kamann, JZ 1997, 605; Ralf Michaels / Hans-Georg Kamann, Grundlagen eines allgemeinen gemeinschaft lichen Richtlinienkollisionsrechts – “Amerikanisierung” des Gemeinschafts-IPR?, Europäisches Wirtschaft s- und Steuerrecht (EWS) 2001, pp. 301 ff., at 308. Directive 2008 / 122 / EC of the European Parliament and of the Council of 14 January 2009 on the protection of consumers in respect of certain aspects of timeshare, long-term holiday product, resale and exchange contracts, O.J 2009 L 33 / 10. Francisco J. Garcimartín Alférez, The Rome II Regulation: On the Way Toward a European Private International Law Code, The European Legal Forum (EuLF) 2007, pp. 77 ff., at 79; Stefan Leible / Mathias Lehmann, Die Verordnung über das auf vertragliche Schuldverhä ltnisse anzuwendende Recht („Rom I”), RIW 2008, 528, 534; Sixto Sánchez Lorenzo, Choice of Law and Overriding Mandatory Rules in International Contratcs after Rome I, Yb. Priv. Int’l L. 12 (2010), 67, 78f.; see also Helmut Heiss, Party Autonomy, in: Franco Ferrari / Stefan Leible (eds.), Rome I Regulation – The Law Applicable to Contractual Obligations in Europe, 2009, pp. 1 ff., at 5.

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to find such an applicable law. Rules on jurisdiction make sure that the law thus chosen is not arbitrary or fundamentally unfair.

cc) Lex Fori for Unharmonized Law

The case is different for unharmonized law. However, even here the lex fori finds a basis in at least one area, namely claims based on unfair competition: As was seen before, the plaintiff can claim the lex fori even for injuries suffered in other markets than that of the court, provided the forum state has also been affected and is the defendant’s home state (Art. 6(3)(b) Rome II Regulation). Antitrust litigation may seem special because of its strong regulatory aspect, but really, regulatory interests underlie all areas in which class actions can be brought. The idea should therefore be generalizable for other areas of the law. At least if the suit is brought in the defendant’s home state and that state is a directly and substantively affected market, the class representative should be entitled to choose the law of that state even for claims that would otherwise be governed by another law. This would help also for class actions in other market-related areas of the law, such as product liability, financial markets, consumer contracts, etc. However, if only the defendant’s home law can be chosen, we still face the problems discussed before (sec. 4. c) aa) with regard to the defendant’s law: it may provide insufficient protection, and it may lie outside the EU, thus not providing any forum. The plaintiff should be able to choose the forum law, therefore, if it is either the defendant’s home law, or if it is the law of the most affected market among markets in the European Union. Such a rule is not optimal: it does not provide full certainty and predictability. But at the current stage of private international law, more cannot be achieved.

5. Policy Suggestions It has emerged that private international law can deal with the issues arising from class actions in a satisfactory manner. Although traditional private international law is made for bilateral relations and individual interests, existing EU private international law already has elements that can be used for collective redress. These elements are a consequence of the Europeanization of European private international law, combined with its stronger regulatory focus.

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More specifically, the following recommendations emerge from the analysis: – The potential that different laws could apply should not bar the certification of a class even in legal systems that require common issues of law. This is so especially where the class action concerns a Europe-wide marketing scheme. – In the administration of the class action, there is a strong interest in designating one applicable law only. This interest exists in the interests of victims, it should therefore be allowed to trump those choice-of-law rules which designate, also in the interest of victims, their home law. – Bilateral choice of the applicable law will only sometimes lead to one applicable law. Where it does not, the ability of the plaintiffs’ representative to choose the applicable law unilaterally should be expanded. – New choice-of-law rules designating one law as applicable are unattractive. They either lead to a suboptimal law (e.g. the defendant’s home law) or are unpredictable (e.g. the law of the most affected market). – In many cases, the lex fori can provide the applicable law. This is so especially where harmonized EU law is in question. – Where the claim is based on unharmonized law, the plaintiffs should be able to choose the lex fori, if it is at the same time either the defendant’s home law, or the law of a significantly affected market.

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Collective Redress and Competition Policy Lia Athanassiou 1. Introductory remarks a) Points of horizontal consensus One of the major concerns of the European legal order is to ensure that all persons, natural or moral, have a right of action for appropriate relief before the national courts, whenever a substantive right conferred by the EU legislation is violated. This very principle has been clearly stated by the Court in the competition law field; in the well-known jurisprudence Courage1 and Manfredi,2 the Court underlined that articles 101 & 102TFEU are directly effective, in the sense that they create rights and obligations for individuals which national courts are bound to enforce through effective remedies.3 However, it is equally true that the distance between enjoyment and efficient enforcement of rights may be significant, mainly in the case of victims with small individual claims. In practice, such claimants (consumers being the characteristic example) would very rarely initiate individual actions as they face “significant barriers in terms of accessibility, effectiveness and affordability” mainly related to high litigation and psychological costs, complex and lengthy procedures and lack of information.4 The intense evolving debate on collective redress across Europe, during the last decade,and the various actions taken to that end, witness that improving of enforcement has become a strategic priority of the EU internal policy, not only in the name of the better access to justice and the better administration of the judicial systems but also in order to reduce compli1 2

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Case C-453 / 99, Courage Ltd v. Bertrand Crehan [2001] ECR-I-6297. Cases C-295 / 04 to C-298 / 04 Vincenzo Manfredi and others v. Lloyd AdriaticoSpA and others, [2006] ECR I-6619. “The full effectiveness of Article 85 of the Treaty and, in particular, the practical effect of the prohibition laid down in Article 85(1)would be put at risk if it were not open to any individual to claim damages for loss caused to him by a contract or by conduct liable to restrict or distort competition” (Courage, para 26, Manfredi, paras 60. 90). European Parliament resolution of 2.2.2012 “Towards a Coherent European Approach to Collective Redress”, (2011 / 2089 / ΙΝΙ), σημείοΕ.

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ance deficit and distortions of market conditions. The actual state of play presents the following characteristics: Although collective redress mechanisms have been adopted by several Member States and despite the commonly shared belief that the existence of such instruments is an indication of quality for any modern judicial system,5 it is noted that national initiatives are highly divergent in terms of scope, design and procedural characteristics, advantages and disadvantages. Those diversities in the national shaping of collective litigation may undermine claimants’ access to justice particularly in the context of cross-border transactions and justify action at EU level, on the basis of subsidiarity and effectiveness. At EU level, the current tendency is to shift from a fragmented and mainly vertical approach to a horizontal one, thus addressing in a uniform manner the problems that occur when a large group of persons have suffered small and scattered losses hindering individual litigation. The results of the studies and the proposals drawn already for a specific sector, i.e. for competition law violations,6 will be incorporated in this horizontal framework. However, in search for a common standard and principles, the European Union has not yet crystallized its ideas about what would be the appropriate European model. Until recently the “model selection issue”7 was handled by the policy makers in a negative way, through the rejection of the US class action model, deemed to have provoked toxic effects, such as excessive litigation, excessive transactional costs, inconsistent duplication of decisions, inadequate delivery of compensation and unreasonable pressure for settlements. Still, trying to achieve policy objectives, while limiting financial returns and controlling risk of abuse, does not seem an easy exercise. Reference to the common legal traditions of MS (if any) is not of great help when discussing the pillars of a new efficient model. This lack of clear directions is also reflecting in certain terminology confusion, as the various collective 5

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European Law does not impose the establishment of collective redress mechanisms at national level, mainly in view of their procedural autonomy. What is uncontestable is that, if such mechanisms exist at national level, they have to respect the principles of equivalence and effectiveness (D. Tzakas, International litigation and Competition Law: The Case of Collective Redress, in J. Basedow / St.Franck / L. Idot, International antitrust litigation: conflict of laws and coordination, Hart Publishing 2012, 161, 163-164). I.e. Commission White Paper on damages actions for breach of the EC antitrust rules (COM(2008) 0165). See Chr. Hodges, Collective Redress in Europe: the New Model, Civil Justice Quarterly 2010 / 7, p. 370 et seq.

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redress instruments are described through divergent terms at national and European level. For simplification reasons, the terms used in the paper will be understood as defined by the Commission documents on a Coherent European Approach to Collective Redress (2011)8 and the White Paper on damage actions for breach of the EC antitrust rules (2008).9

b) Collective redress as a tool of competition policy While not denying the need for a horizontal framework applying to collective actions in general, irrespective of the sector concerned, this paper focuses on the specificities of competition law claims and argues that collective litigation may face in this area additional obstacles relating to the substantive and procedural requirements for damages actions in case of breach of antitrust rules. It is well-known that, until recently, the application of antitrust law in civil disputes before national courts was underdeveloped in Europe as the enforcement task was entrusted to public authorities (European Commission and national competition authorities). The Commission published a Green and a White Paper, in 2005 and 2008 respectively, in an effort to address issues for a more efficient damages action system, including improving collective litigation.10 However, it is still not clear what balance does Europe want between public and private enforcement and which role has to be reserved for the damages actions. This question of profound significance has been overlooked and to a certain extent treated in a contradictory way in the above Commission’s documents. The Green Paper seemed, at a first place, to envisage both public and private enforcement as parts of a common system serving the same aims, i.e. to deter anticompetitive practices.11 The question whether liability for damages should have mainly or exclusively a compensatory function is an old debate, which however affects considerably the way litigation in general, and collective litigation in particular, should work. Indeed, low value claims pose a challenge not for the compensatory function of liability but for the de8

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SEC (2011) 173 fi nal. The Commission has adopted in 2013 a Communication “Towards a European Framework for Collective Redress (COM (2013) 401 final) and a Commission Recommendation on common principles for injunctive and compensatory collective redress mechanisms in the MS concerning violations of rights granted under Union Law” (C(2013) 3539 fi nal). COM (2008) 165 final. COM (2005) 672 fi nal. Op.cit.,para 1.1.

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terrence. It is not that the victims cannot bear the burden of harm suffered individually so that compensation is required.12 The amount of each harm is limited, although the total amount is huge, justifying the consumer’s “rational apathy”. If it was only a question of compensation we should refrain from any private enforcement, taking into account the costs of legal proceedings. The underlying reason is that the prospect of liability will lead the potential wrongdoer to comply with the law and to take precautions against causing harm to third parties. In the 2008 White Paper, the Commission relegated deterrence to the back seat, in order to avoid overreactions related to the American style litigation. It therefore argued that “full compensation is the first and foremost guiding principle”.13 Going from one end to another, the Commission disregards the fact that compensatory justice cannot justify all forms of collective redress, nor is the appropriate relief for all kinds of victims and claims. This point will be further explicated when discussing the weakness and strengths of the collective instruments proposed by the Commission. These are, on one hand, the representative actions being understood as those brought by qualified entities, officially designated in advance or certified ad hoc, on behalf of identified or identifiable victims; on the other hand, the (opt-in) collective actions being the multi-party forms in which victims combine into one action their individual claims for harm they suffered from the same unlawful behavior. The same mechanisms were put forward in articles 4 and 5 of the pre-draft directive “on rules governing damages actions for infringement of Articles 81 and 82 of the Treaty”, which was later withdrawn. It is worthwhile to note that the new proposal for a directive on certain rules governing damages actions for infringement of competition rules14 do not contain any more similar provisions, as the Commission has definitely opted for a horizontal approach on this matter rather than the inclusion of competition-specific provisions on collective redress.15

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Cf. G. Wagner, Collective redress-Categories of loss and legislative options, (2011) 127 L.Q.R., p. 55, 60. Op.cit, para 1.2., p. 3. COM (2013) 404 final. Explanatory Memorandum of the proposal, Par. 2.1.

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2. Issues to be addressed in competition claims Specificities16 related to the identification of victims (A), the quantification of the damage deriving from an anticompetitive practice (B) and the decentralized implementation of competition rules (C) adversely affect the possibility of successfully exercising the right to damages. The above obstacles hinder both individual and mass claims, but mostly affect collective litigation.

a) Identification of the victims aa) The problem of passing-on and the responses of national laws

The following typical price-fixing cartel case may illustrate the problem: Manufacturers of milk and milk-related products agree to buy milk from the farmers at a lower price and sell processed products to their direct purchasers at a higher price (overcharge). Super markets (direct purchasers) sell the products onwards until the individual items reach the ultimate consumers (indirect purchasers). Some have absorbed the overcharge, while others passed it on wholly or in part to their own purchasers. The same has happened at a different degree in cases where milk was used as a raw material. Which purchaser or groups of purchasers have standing to exercise an action for damages? Which purchaser or groups of purchasers have suffered the damage? The problem17 has an active aspect (whether the indirect purchasers have standing to sue) and a passive aspect (whether the defendant is entitled to invoke the passing-on defence, in case the loss has been passed down the supply chain or even suffered totally by the final consumer). Passing-on is probably the central issue of private antitrust enforcement. It has been the 16

17

Cf. the reference to the specificities of the competition law claims in the Green Paper on Consumer Collective Redress, COM (2008) 794 final, para 5. See indicatively Fr. Bulst, Private Antitrust Enforcement at a Roundabout, 7EBOR 2006, σελ. 725επ., E. Hennebery, Private Enforcement in EC Competition Law: The Passing On Defense and Standing for Indirect Purchasers, Representative Organisations and Other Groups, ERA-Forum 2006, σελ. 15επ.,F. Hoisenian, Passing-On Damages and Community Antitrust Policy – An Economic Background, 28 W. Comp. 2005, σελ. 3επ.,J. Ruggeberg& M.P. Schinkel, Consolidating Antitrust Damages in Europe: A Proposal for Standing in Line with Efficient Private Enforcement, 29 W.Comp. 2006, σελ. 395επ., D. Sheehan, Passing-on, indirect purchasers and loss allocation between claimants, LMCLQ 2012, 261.

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subject of a constant debate in the US and has provoked two widely-cited and restrictive decisions of the Supreme Court, almost half a century ago, the Hanover Shoe18 (unavailability of the passing-on defence19) and Illinois Brick20 (no indirect purchaser standing).21 Although the choice to reject passing-on standing and defence is policy-related22 and may be justified on the purpose of ensuring more efficient enforcement of competition rules through the empowerment of direct purchasers,23 it presents a major shortcoming as it leaves without compensation the final consumers who are the main victims of most antitrust violations. 18

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Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481 (1968). For the US law, see also H. Hovenkamp, The Law of Competition and its Practice, 1999, 2nd ed., p. 618 et seq. A Shoe manufacturer brought a treble damages action against of manufacturer of shoe-making machinery for unlawful monopolization and the defendant argued that the claimant was not injured because it passed-on its losses to buyers of shoes. The Supreme Court rejected this defence as it was too difficult to be established (difficult evidence, time-consuming and uncertain process). In addition, if the defence were accepted, it would automatically leave final consumers as the only group entitled to damages, but with a limited interest to bring an action. In consequence, those who violate the antitrust laws by price-fi xing would retain the fruits of their illegality. Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977). The Court rejected also the so-called offensive use of the passing-on defence on 3 grounds: symmetry with Hanover Shoe, efficiency and effectiveness of private enforcement. In this case, there was a price-fi xing cartel between producers and distributors of concrete blocks. The blocks have been purchased by masonry contractors, who in turn incorporated the costs in bids submitted to general contractors constructing buildings for the plaintiffs. The plaintiffs were 3-level consumers, who purchased the concrete blocks as a component part of the buildings. The action was rejected in the belief that deterrence objective was better served by letting the direct purchasers sue for the full amount of damages. Thus, indirect purchases may only bring an action for injunctive relief. Inter alia, S. Parlak, Passing-on Defence and Indirect Purchaser Standing: Should the Passing –on Defence Be Rejected Now the Indirect Purchaser has Standing after the Manfredi and the White Paper of the European Commission?, W. Comp. 33 (2010), 31, 33 et seq. In summary, 3 policy reasons seem to have dictated the position of the Supreme Court: a serious risk of multiple liability for defenders and inconsistent adjudications, the overwhelming of the courts and the risk of eroding the deterrent effect of private actions due to decrease of the direct purchaser’s incentive to sue (Hennebery, op.cit, ERA-Forum 2006, p. 20).

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In the EU, there is no doubt that any individual who has suffered damage caused by an antitrust infringement must be allowed to claim damages. That general principle includes the indirect purchasers who have no direct contractual relationship or link with the infringer,24 provided that the conditions set forth by the national law are met (mainly suffered harm and causation). Recognising standing to all victims complicates, however, the issue of the passing-on overcharges. If it is allowed to all, direct and indirect purchasers, to sue the infringer for damages, it is necessary to set safeguards in order to minimize the risk of undue enrichment and multiple compensation, while preserving the deterrent effect. The Member States have not adopted a uniform solution and, in fact, there is no optimum solution to that issue. This is so because taking passing-on into account accomplishes the compensatory objective guiding the European expectations, but renders less manageable the civil litigation and requires complex economic analysis. In some Member States (like France and Italy), the defendant is allowed to invoke as defence that the claimant has fully or partially passed on the illegal overcharge to his own customers and, therefore, he has not suffered any loss. In other Member States, this defence is excluded either explicitly,25 or by reference to the general principles of the liability for damages.26 In search of a balanced solution, the Commission suggests27 that the defendants should be entitled to invoke the passing on defence; however, in order to lighten the victims’ burden of proof, indirect purchasers should be able to rely on the rebuttable presumption that the illegal overcharge was passed on to them in its entirety. In case of joint, parallel and consecutive actions brought by claimants at different points in the distribution chain (which is of interest from the perspective of this paper), no guideline is given. National courts are simply encouraged to use all existing mechanisms in order to avoid phenomena of under- or over- deterrence. The same elements were met in art. 10 and 11 of the pre-draft directive on rules governing damages actions for infringements of Arts. 81 and 82 of the Treaty. The new directive proposal contains more detailed provisions28 based on the above ideas: the defendant may invoke the defence, unless it is legally 24 25 26

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Manfredi, op. cit., para 61, White Paper, op. cit., para 2.1., p. 4. I.e. Germany (§ 33 para 3 GWB). I.e. Greece, on the basis of the compensation of damage and profit. It is not considered as subject to the setting-off, profits due to an autonomous activity of the injured party (and not deriving as a consequence of his obligation to limit the extent of the damage (see M. Stathopoulos, Contract Law in Greece, 2nd ed., 2009, 202-204). White Paper, para 2.6, p. 8. Art. 12-15.

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impossible for victims at the next level of the supply chain to claim compensation; the indirect purchaser benefits from a rebuttable presumption pursuant to which, subject to the conditions of art. 13, a passing-on to the indirect purchaser has occurred; however, no additional guideline is given for the coordination of more than one actions.

bb) Collective litigation and levels of chain

The problems underlined above are more intense when faced in the context of a collective litigation. Indeed, in most other areas of law in which collective redress instruments are used, those benefiting from them pursue a common interest against a particular defendant or group of defendants. Regarding the private actions in antitrust, the situation is remarkably different because purchasers from different levels of the distribution chain may rely on diverging approaches as to the occurrence of the harm and its calculation.29 One can imagine, for example, a hypothesis where the group of claimants in the same case comprises both direct and indirect purchasers: the first would try to persuade the court that the overcharge was not passed on the next link, whereas the second would need to establish that it was.30 The attitude of the defendant would largely depend on the profile of the claimants. In a case such as the example above, he would be rather remaining neutral. In contrary, if all claimants were at the same level of chain, the defendant would be more concerned either to argue and prove that the passing-on did took place (against direct purchasers) or that the overcharge was not passed on or alternatively that it was further passed-on by the level of claimants to the next one.31 The difficulties that may arise for the design and organisation of collective litigation are well illustrated in the example of representative actions as modelled by English Law. The UK has adopted five basic mechanisms for multiparty litigation: test cases, consolidation of cases, single trial of multiple actions, group litigation orders and representative actions.32 In the 29 30

31 32

Cf. Bulst, EBOLR 2006, 745. Cf. G. Barling, Collective Redress for Breach of Competition Law: A Case for Reform? [2011] Comp Law, 5, 10. Idem. All those instruments can be carried out before ordinary courts. An additional collective redress tool is provided for by S. 47 B of 1998 Competition Act. According to the latter, a statutory representative claim can be brought before the CAT by a body specified in advance, on the basis of published criteria. It is always a follow-on action on behalf of named consumers (see G. Barling, [2011] CompLaw 13).

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context of representative actions, a named claimant is allowed to act on his own behalf and also on behalf of a class of individuals who will be bound by the judgment, although not parties to the action. In the recent case Emerald Supplies,33 the Court of Appeal had the possibility to examine the criteria for the admissibility of this multiparty litigation in the antitrust area. In this case, two flower importers sued for damages an airline company in respect of harm suffered as a result of the cartel in air cargo freight. They also, on a representative basis, seek a declaration on behalf of all shippers of air freight (direct and indirect purchasers) to their right to a remedy in respect of the cartel. The Court rejected the application, ruling that the legal requirements were not met on the following grounds:34 a class sought to be represented should all have a common interest and a common grievance and the relief sought should in its nature be beneficial to all of them. In that case, it was impossible to determine at the time the claim was issued whether an individual was member of the class, as his inclusion would have depended upon the outcome of the action; furthermore, the relief sought would not be equally beneficial, as the extent of the damage suffered would depend on the overcharge itinerary, provoking thus conflicts between different members. The conclusions one could draw from the identification of victims in antitrust suits are the following: A solution to the passing-on problem cannot be found merely by facilitating multi-party proceedings. It is in fact non-workable to introduce an indistinctive procedural concentration that renders claims of market participants of different levels dependent on each other.35 The impact of the passing-on issue varies according to the nature of the relief sough in the context of a multiparty proceeding. If the remedy sough is an injunctive relief, then the composition of the group is less important, and inclusion of both direct and indirect purchasers could be envisaged without particular difficulties. The same would occur if the collective action aims at a declaratory judgment establishing a tort of conspiracy, with each claimant being then left to establish his own damages relying upon the res judicata of the collective action.36 If the relief sough is compensation for suffered loss, the composition of the class is crucial, as it may not include groups with conflicting interests. There are three possible solutions to that, one regarding the substance of the case and two of procedural nature. The first would consist in excluding the passing-on defence, which would allow compensation for all victims. 33 34 35 36

[2010] EWCA Civ 1284, [2010] All ER (D) 200 (Nov.). G. Barling, [2011] CompLaw 12. Cf. Bulst, EBOLR 2006, 745. Cf. Prudential Assurance Co. Ltd v. Newman Industries Ltd, [1981] Ch. 229.

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A risk of over-deterrence and over-compensation will not become realistic until collective redress becomes effective in practice. The second would procedurally align the composition of the class to the participants of the same level of the distribution chain. The third would grant the national court the discretion to decide about the composition of the claimants’ group, taking into account the facts of the case and the relief sought.

b) Quantification of damages aa) Techniques of quantification

The second major issue lies with the quantification of the losses suffered from an infringement to competition rules. In an action for damages, the burden to prove the loss lies upon the claimant. That is the general rule applying in most civil procedures. In so far as there are no EU rules governing the matter, it is for the legal system of each Member State to lay down the detailed rules governing the exercise of this right.37 Assessing the amount of damages is particularly difficult in competition cases. This is true for individual claims; it is ever truer in case of collective litigation. For instance, in a cartel leading to higher prices for customers of the cartelists, a non-infringement price will need to be estimated, in order to have a reference point for comparing it with the price actually paid by these customers. However, it is impossible to know with certainty how a market would have exactly evolved in the absence of the cartel, because prices, sales volumes and profit margins depend on various factors and complex interactions. Indeed, a number of methods and techniques have been developed in economic and legal practice in order to establish a suitable reference scenario in a given set of circumstances. The Commission took notice of the problem in both the Green38 and the White39 Papers. It also sought expertise from legal and economic practitioners and academics and, based on the information received, it produced a Draft Guidance Paper in order to offer assistance to courts and parties, as far as the quantification of antitrust harm is concerned. The main quantification techniques, presented in the Guidance Paper, are the following: The Comparison of the same market before and after the infringement consists in comparing the prices on the same geographic and product market at an affected and at a non-affected period (at a time before and / or after 37 38 39

Cf. art. 16 of the directive proposal. Para 2.3. Para 2.5.

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the infringement).40 Although it presents the advantage of focusing on the same market, its main weakness is related to the uncertainties as to which time periods were actually not affected by the infringement. Its use is not recommended in case the market was not ever functioning under conditions of workable competition. In the same family of comparator-based methods, belongs the comparison between similar products or similar geographic markets (“yardstick method”),41 particularly relevant for quantifying the consequences of an exclusionary behaviour. The accuracy of those techniques depends on the degree of similarities between the compared markets. It may also be affected by uncertainties regarding the geographic scope of an infringement (making them no suitable for the examination of international cartels). One may add here the method of the Lost Market Share, based on a comparison of the victim’s market share before and after the infringement, suitable when external factors affect the relevant market and mainly used for the calculation of loss of profit.42 The above comparative methods over time and across markets may be combined in order to isolate the effects of the infringement from other influences. Other methods are also in use. Specific reference can be done to the various simulation techniques, drawing on economic models of market behaviour; they are based on assumptions on market outcomes, which is at the same time their strength and their weakness, as these assumptions are not always easy to prove.43 The cost-based method is also used to estimate the likely prices that would have emerged absent the infringement, taking into account some measure of production cost per unit according to the characteristics of the industry concerned and adding a mark-up for a profit that would have been reasonable in a non-infringement scenario.44

bb) Quantification on a collective basis: the idea of an “approximate compensation”

In view of the amount of the required data and the expertise needed to that end (depending on the standard of proof imposed by national law and the chosen method of quantification), it is almost self-evident that the calculation of damages becomes a cumbersome, expensive and time-consuming exercise. In case of a great number of individual losses suffered by the final 40 41 42 43 44

Draft Guidance Paper, paras 33 ff. Draft Guidance Paper, paras 43ff. H. Hovekamp, p. 672. Draft Guidance Paper, paras 86 et seq. Draft Guidance Paper, paras 94 et seq.

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consumers, complexities are multiplied, as the mass of individual claims have usually to be evaluated in conjunction with the passing-on issue, discussed previously. Thus, in the above hypothetical scenario of the price-fixing cartel, the total or partial pass-on of overcharges would normally provoke a volume effect, on each level of the distribution chain, as increase of prices causes decrease of demand (i.e. loss of profit).45 Thus, a group of claimants, depending on the level on which they operate, would have to prove, by using one or more of the methods described above, the pass-on rate in the concrete case, its effect to the sales volume and the duration of the loss, and then apply the findings to each member of the group. As the Commission points out, it is not possible to establish a typical pass-on rate applicable in most situations, as the existence and the degree of pass-on can only be assessed with regard to both the conditions of the market in question and the characteristics of the infringement (price-elasticity, variation of marginal cost, impact and duration of the anticompetitive practice, frequency of business exchanges).46 Seen at the last level of the ultimate consumers, the task seems almost impossible, as it is not realistic to require, in addition to the overcharge rate, proof of volume and number of purchases made by each consumer, taking into account that the latter is entitled to a low-value claim and is situated at a remote position from the infringer. In view of these remarks, some additional conclusions may be drawn: – The establishment of collective redress mechanisms cannot by itself guarantee the efficient exercise of victims’ rights, if evidential difficulties are not addressed. Such difficulties have to be resolved at a tailor-made way, taking into account the number and the value of claims, as well as the position of the claimants in the distribution chain. – In case of massive consumer claims, the role and the functioning of the compensatory principle should be revisited. Other forms of relief should be equally encouraged (injunctive relief as a form of in natura redress). The monetary compensation, itself, should be remodelled, by legislative means if necessary, in order to allow an award of approximate damages.47 Thus, in a typical price-fixing cartel, like the one described above, the award of damages could be based on alternative methods of calculation rather that on the specific and proved losses of individuals. This possibility is not unknown to the EU legislator. In case of infringement of intellectual property rights, Directive 2004 / 48 / EC48 allows, the judicial 45 46 47 48

Draft Guidance Paper, paras 142 et seq. Draft Guidance Paper, paras 148-151. G. Barling, [2011] CompLaw 9. EE L 157 / 30.4.2004.

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authorities to set the damages, not on the basis of actual losses, but as a lump sum on the basis of elements such as the amount of royalties which would have been due if the infringer had requested authorisation to use the right in question;49 in appropriate cases, recovery of profits may also be ordered. Similarly, in a cartel case, the compensation could be based on the cumulative overcharge presumably made by the infringer to its customers or to the final consumers. The German legislation provides a pertinent example to this end.50

c) Multiplicity of enforcing agents aa) Decentralized application of competition rules

Another characteristic issue of competition infringements is the multiplicity of enforcing agents, not only across Member States but also within the same legal order. Since 2004, when Regulation 1 / 2003 came into effect, the enforcement of competition law rules has been modernized and decentralized,51 mainly through the introduction of the legal exception system and the consecutive elimination of the exemption monopoly of the Commission.52 The role of national authorities and national courts has been, therefore, largely enhanced as they were entrusted both with the decentralised enforcement (arts. 4-6) and with the uniform application of the substantive competition rules; it is reminded that national competition authorities and courts are not only obliged to apply articles 101 and 102 TFEU, in addition to national law, when an agreement or practice affects interstate trade (art. 3), but also to ensure the complete supremacy of EU rules over national competition law (art. 16). 49 50

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Art. 13. S. 34a of the GWB entitles business associations to claim for damages suffered by the indirect purchasers-victims of antitrust infringements; damages amount to the gains the wrongdoer earned from the illegal practice. Among the numerous papers and publications, A. Jones & Br. Sufrin, EU Competition Law, Text, Cases and Materials, 2011, ch. 14, p. 1026 et seq., Fr. Montag& A. Rosenfeld, A Solution to the Problems, Regulation 1 / 2003 and the modernization of competition procedure, ZWeR 2 / 2003, 107. See art. 9(3) of previous Reg 17 / 62. This fundamental change means that the undertakings are themselves responsible for assessing whether their agreements are in conformity with art. 101TFEU and that the issue of whether a certain practice falls within the scope of art. 101 or not may be raised in the course of civil law disputes.

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The new system is one of parallel competences. The public enforcement, which remains the main axe of the competition policy, is shared between the Commission and the twenty-seven competition authorities. However, Regulation 1 / 2003 does not provide satisfactory guidance on the case allocation between the national authorities,53 limiting itself in organizing a loose framework of cooperation and information exchange, despite the fact that most anticompetitive practices present cross-border effects. The softlaw guidance provided for in the Commission Notice on cooperation with the Network of Competition Authorities,54 although welcomed, is not sufficient because it addresses the case allocation as a mere division of labour,55 and not as a decision of competence which may significantly affect an undertaking’s legal position (due to the divergent procedural rules of MS). In addition to the multiplicity of public enforcers, national courts have also an essential part to play in applying the EU competition rules.56 Although Regulation 1 / 2003 did not aim at directly remedying limited private enforcement, it definitely made a first step to that end by granting national judges the power to apply art. 101(3) TFEU. Thus, a national court may be involved in the examination of an anticompetitive practice, following the exercise either of a standalone action or of a follow-on action (meaning the action based on a finding of infringement made by the Commission or the national competition authority). Public enforcer and national court may be also involved in parallel in the same case, if, for example, both an action is exercised and a complaint is lodged by the same or different injured users. There is no uniform rule governing the legal effect of the public enforcer’s decision upon the private one, nor a rule regarding the position each enforcer should adopt, if another one is involved in the same case. The problem is addressed through the applicable procedural rules of the MS concerned. A fortiori, there is no European answer to the question whether a decision granted by the competition authority of a MS should have or not a binding effect on the courts of other MS,57 despite the increasing 53 54 55

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Case allocation between the Commission and the NCAs is addressed in art. 11(6). 2004 / C 101 / 3. Part 2 of the Notice. In most instances, it is provided that the authority receiving a complaint or starting an ex-officio procedure will remain in charge of the case. Re-allocation could be envisaged if the said authority is not well placed to act or if other authorities consider themselves well-placed to act, in view of the existence of a material link between the infringement and their MS. Para 7 Preamble of Reg. 1 / 2003 and art. 6. The draft directive intended to address that problem, by expressly providing for the binding effect of competition authorities’ decisions upon the national courts of other MS (art. 12).

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importance of cross-border transactions, the possible involvement of more than one competition authorities in the examination of the same infringement (when it affects their respective territories) and the subsequent risk of forum shopping.

bb) The role of competition authorities in collective redress

In this complex environment, with increased legal uncertainty for the collective litigation,58 one may wonder whether the national competition authorities may assume an additional role in the protection of consumers’ interests. Although reservations may be expressed based on the primary enforcement role of those agencies, their further empowerment should not be excluded if efficient collective redress is to be sought. Some feasible actions could take the following forms: – First, the possibility could be explored to grant the national competition authorities power to act before the national courts, on behalf of victims of anticompetitive practices; it suffices that the national or EU legislation allows for the NCAs to act as qualified entities, certified in advance or ad hoc. It does not seem to be any major difficulty to that end, as qualified entities may include any body entitled to bring collective actions on behalf of injured parties, without being necessary to establish a membership relationship between the entity and the represented victims.59 The only risk here lies with the possible impact on the impartiality of the public enforcer, which would justify limitation of NCAs’ empowerment to follow-on actions having been the object of a positive decision from the relevant authority. – It could be, further, explored whether the NCAs may encourage undertakings against whom they intend to take enforcement actions, to provide redress to the persons having suffered loss due to the anticompetitive practices. This element has been taken into account by the Commission, as a mitigating factor, already in two decisions, the Pre-Insulated Pipes Case60 and the Nintendo Case.61 In the “Principles for Convergence on pecuniary sanctions” adopted by the Network of NCAs in 2008, it is 58

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Mainly regarding the standing of the collective entities acting as claimants, the procedure to be followed, the award and the distribution of damages. Cf. art 6 of the draft directive. EE L 24 / 1999, p., para 172. EE L 255 / 2003, p. 33, paras 440, 441. See also W. Wils, The Relationship between Public Antitrust Enforcement and Private Actions for Damages, 32 W. Comp. (2009), 3, 19, 20.

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also mentioned that the applicable fine may be reduced if the offender takes active steps to mitigate the adverse consequences of the infringement by providing voluntarily, timely and adequate compensation to those who have suffered damages as a result of it.62 Examples exist also at national level; in the context of the administrative settlement of cases handled by the OFT, the schools involved in the Independent Schools case agreed to make payments totalling several million pounds into a trust fund to be applied for the benefit of those affected (i.e. the pupils having attended the schools during the academic years in which the infringement took place). Each school agreed to pay a penalty which was substantially lower than the penalty which would otherwise nave been imposed on it.63 It should not, however, be overlooked that this scenario has certain limits related to the structure and the functioning of public enforcers. Thus, while (voluntary) compensation has taken into account in the above examples as a mitigating factor or in the context of a settlement, one should not expect from a competition authority to proceed with the quantification of the harm sufferedor to impose “compensation”, substituting itself to the role of civil courts,64 as this would require extended changes in the existing enforcement system.

3. Collective redress implications a) The various profiles of collective actions aa) One size does not fit all

This statement underlines the need to match the design of the collective redress mechanisms to the distinctive categories of victims, the nature of their claims and the policy objectives. It is more pertinent in case of competition law infringements, where the groups of injured persons are situated in different levels of the distribution chain, present diverse characteristics and have normally conflicting interests. The Commission’s Green Paper on Collective Consumer Redress (2008) expressly refers to the specificities of antitrust claims, mentioning the wider scope of victims of anticompetitive practices, which includes not only final purchasers (consumers) but also

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Point 16. OFT press release 166 / 06, 23 / 11 / 2006, OFT: Private actions in competition law: effective redress for consumers and business, Discussion Paper, April 2007, p. 50-51. Aggregation of losses would highly facilitate the action of the NCAs in this context.

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SMEs.65 In its White Paper and the (withdrawn) draft directive, the Commission took note of this difference and proposed two-fold measures.66 The first proposal consists in an opt-in group action for several victims who expressly decide to combine their individual claims in a single action.67 This mechanism fits well for claims of businesses, normally undertakings situated to the closer to the infringer levels (mainly but not exclusively direct purchasers). Claims of businesses should not be neglected. Each of those injured parties is easily identifiable and has normally suffered a harm of a considerable amount, at least larger and more easily quantifiable than that of final consumers. The consolidation of (viable) claims serves here both purposes of good administration of justice (avoiding the overburdening of courts with related claims) and competition policy goals (avoiding retaliation or exclusion measures if only some of the injured parties sue the infringer). In such a case, liability fully displays its compensatory function and it can only be fair for the damages adjudicated to be distributed to claimants. The picture is not equally clear when one comes to the scattered losses suffered by a large number of final purchasers-consumers. While the low value of each claim should not justify any action due to the disproportionate administrative costs and the insignificant amount of compensation, the total loss may add up to a considerable amount and, thus, to a considerable illegal profit for the infringer. The deterrence function of liability takes here priority and is (or should be) served by all available remedies, be they injunctive relief or damages, as a matter of public policy.68 Indeed, non-enforcement or under-enforcement of claims would undermine the purposes of substantive law and would encourage non-compliance from the side of the potential infringers. Subsequently, if the crucial question is about law enforcement and not about compensation of individual victims,69 distribution of damages would be a secondary issue from a competition policy perspective and would depend on the amount of the losses incurred, as will be further analyzed in the relevant section. To mainly70 cover this category of claims, the Commission proposed the instrument of representative action which can be brought by qualified 65 66

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Op. cit., para 5. As already noted, the directive proposal of 2013 has eliminated any reference to the matter, as it will be addressed at a horizontal level. White Paper, op. cit., para 2.1., draft directive, art. 4. To that direction, see G. Wagner, op. cit., (2011) 127 L.Q.R. 63. Idem, p. 82. Qualified entities may also represent SMEs’ interests (i.e. in the case of a trade association).

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entities, such as consumer organizations or state bodies on behalf of a group of victims.71 The qualified entities, to be designated in advance or certified on an ad hoc basis, could exercise the action on behalf of identified or eventually identifiable72 members. This reference to the “identifiable” victims leaves room, albeit limited, to interpret the representative actions as a potentially opt-out mechanism.73

bb) Gate-keepers and Opt-out mechanisms

The debate on opt-in / opt-out mechanisms overshadows until now the whole debate on collective redress and has provoked an intense exchange of views among academics, practitioners and policy makers.74 The opinions expressed in Europe are highly marked by the reservations towards the American class-action model. Indeed, initiatives at EU level as well as national reforms, albeit their lack of homogeneity, seem inspired by the desire to find a model which is distinct from that of the US class action and which draws upon more specifically European concepts.75 It is argued here that the introduction in the European legal order(s) of an opt-alternative at a controlled dose would not run against the legal culture of Member States, despite the traditional procedural principle of party disposition.76It would moreover adequately serve the objectives of enforcement of consumers’ rights and establishment of a level-playing field.

71 72 73

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White Paper, op. cit., para 2.1., draft directive, art. 5. See art. 5 (2) of the draft directive. D. Fairgrieve& G. Howells, Collective redress procedures- European debates, 58 ICLQ 2009, 379, 405. Indicatively R. Mulheron, The Case for an Opt-Out Class Action for European Member States: A Legal and Empirical Analysis, 15 Colum. J. Eur. L 2008-09, 409, Gaudet, Turning a blind eye: the Commission’s rejection of opt-out class actions overlooks Swedish, Norwegian, Danish and Dutch experience, 30 ECLR (2009), 107, J. Delatre, Beyond the White Paper: Rethinking the Commission’s Proposal on Private Antitrust Litigation, (2011) 8 (1) CompLRev 29, F. Polverino, A Class Action Model for Antitrust Damages Litigation in the European Union, 30 W.Comp. (2007), 479. D. Fairgrieve& G. Howells, (2009) 58 ICLQ, 399. See also D.P. Tzakas, Effective Collective Redress in Antitrust and Consumer Protection Matters: A Panacea or a Chimera? CMLRev. 2011, 1125, 1135 ff.

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Firstly, some Member States, although few, have adopted opt-out instruments; Portugal,77 Norway,78 Denmark79 and Holland80 belong in this category. While these countries have restricted the scope of the opt-out mechanism and narrowly define the conditions of this use, one may not say that this model is completely unknown to the European experience. In addition, fears related to the US class-action excesses are somehow exaggerated, as the alleged risk of abuses may be reduced or eliminated in the context of the European-style civil procedure, because of the bar of the contingency fees in the form of a quota litis, the application of the loser-pays principle, the lack of juries and the discovery restrictions.81

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Portuguese legislation provides for an “actio popularis” (guaranteed by art. 52 par 3 of the 1976 Constitution) mainly directed, although not expressly, at consumers. Collective proceedings may be lead, without any prior certification, by individuals, associations defending specific interests, local authorities or public bodies; thus, the action will take either the form of an opt-out class action or of an optout representative action, depending on the status of the class leader. All types of damages are recoverable (see J. Delatre, (2011) 8 (1) CompLRev 39-41, R. Mulheron, 15 Colum. J. Eur. L 2008-09, 421-22). Norwegian Dispute Act (2005) provides for both opt-in and opt-out actions, the second being designed as an alternative to the first one and available in specific circumstances. The choice belongs to plaintiffs but the court is ultimately empowered to decide which form best suits the action (see J. Delatre, (2011) 8 (1) CompLRev 41). The Danish Group Action was introduced by the 2007 Act on Class Actions. This instrument is primarily based on an opt-in model; however, the opt-out alternative is available following a court decision. While the Group action may be brought by an individual, a consumer association or by a Public Authority, only the latter can institute an opt-out action; the Danish Comsuner Ombudsman is the sole recipient of this status. On 2008, a certification stage was introduced for the fi ltering-out of the claims (see J. Delatre, (2011) 8 (1) CompLRev 42-43, R. Mulheron, 15 Colum. J. Eur. L 2008-09, 423-24). The Dutch Settlement mechanism differs as it deals only with the settlement phase of a multiparty claim, at which (phase) the individual claims are aggregated. It was created to address claims from mass disaster accidents. The court has the power to approve collective settlement where an agreement has previously been reached between an wrongdoer and a claimant, an association or foundation sufficiently representative; compensation is awarded to claimants on the basis of the characteristics of class of which they are a member and not on the basis of their personal characteristics (D. Fairgrieve& G. Howells, (2009) 58 ICLQ 388-389, R. Mulheron, 15 Colum. J. Eur. L 2008-09, 424-27). G. Wagner, (2011) 127 LQR, 73.

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On the other hand, advantages possible to derive from a reasonable use of the opt-out system should not be underestimated. They include: lower cost of claims’ handling; increased participation of injured parties in the collective litigation and the subsequent overcoming of the rational apathy of victims related to social, psychological, financial or transparency reasons; furthering the aims of public enforcement by enhancing the motives for the private one; limiting the differentiated treatment of victims of international anticompetitive practices82 through the establishment of suitable collective compensatory redress measures in claimants’ home jurisdictions; increased efficiency of the judicial resources. The representative action may be modeled as the European answer to the American class action. It allows, if suitably designed, to benefit to some extent from the above advantages, while discouraging unmeritorious claims. The entities designated to bring actions before the courts on behalf of injured parties, mainly final consumers, would thus act as “gate-keepers”83 to collective redress. At national level, such a role is primarily but not exclusively played by the consumers associations;84 other public bodies (Ombudsman) are also qualified, to which the competition authorities should also be added, as argued above. The ex ante certification of those entities on the basis of criteria set at national or preferably EU level or the ad hoc designation of such class leaders is a first safeguard against the risk to unleash an uncontrolled number of claims. Enhancing the discretion of the courts in deciding about the form of the suitable action (opt-in / opt-out), the opportunity and the binding effect of an adequate out-of-court settlement, and eventually the merits of an ad hoc designated class leader entity, should further reduce the risk of excesses. One additional advantage, when using gate-keepers, is also that interests of foreign consumers affected by anticompetitive practices may be also taken into account, i.e. by empowering representative bodies to bring damage actions in other jurisdictions or before domestic courts on behalf of foreign victims, although this issue can better be addressed in a more general discussion regarding the openingup of national procedures to foreign victims.85 However, focusing on gatekeepers results in the need to address issues relating to the appropriate 82

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Mainly expressed through the phenomenon of « add-on» European classes to U.S. Class Actions, R. Mulheron, 15 Colum. J. Eur. L 2008-09, 441ff. Expression pertinently used by D. Fairgrieve& G. Howells, ICQL 58, 2009, p. 400-401. I.e. art. 140bis of Italian Consumer Code according to which the consumer associations may bring damages claims for tort liability, unlawful commercial practices or anti-competitive behaviour, the French “action d’intérêtcollectif ”. See also G. Wagner, (2011) 127 LQR, 79, D. Fairgrieve& G. Howells, ICQL 58, 2009, 400-401. D. Fairgrieve& G. Howells, ICQL 58, 2009, 404.

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remedies, the calculation of damages (already addressed above) and mainly to their ultimate distribution.

b) The appropriate remedies aa) Compensation as one of the available remedies

Although the collective redress agenda focuses on damages and the adequate compensation of victims, it should be pointed out that damages are one of the remedies available to the victims of antitrust infringements and, depending on the nature of the claims, perhaps not the most effective. Equally important from a policy point of view is the possibility to seek an injunctive relief, i.e. to exercise an action requiring the cessation or prohibition in the future of any infringement and / or the elimination of its continuing effects. This possibility already guaranteed at EU level for consumer law claims,86 was not given sufficient attention in the competition law area,87 eventually due to the predominant role that public authorities enjoyed until recently in the enforcement of substantive provisions. Thus, at this point, the approach should be slightly different than that followed until now: instead of highlighting the specificities of competition law claims, emphasis is to be put at the need of extending consumer law collective enforcement devises into the competition law area. Indeed, for victims of low value claims, it is more important to achieve cessation of the infringement accompanied with an order of pecuniary sanctions in case of failure to comply (as a kind of in natura redress), than to get a small amount of money for compensation (monetary compensation). Thus, for the category of representative actions brought by qualified entities, this option should be equally available. This is often the case at national level for various claims (unfair contracts or practices, consumer law, intellectual property, competition law), but it would more appropriate from a policy point of view to have it institutionalized at the EU level, as Directive 2009 / 22 / EC did for consumer law claims. What has been said above does not deny the importance of damages, both from a compensatory and a deterrence point of view. Their importance varies, however, according to the nature and the value of the claims concerned.

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Directive 2009 / 22 / EC of 23 / 4 / 2009 on injunctions for the protection of consumers’ interests, EE L 110 / 1.5.2009, p. 30, replacing previous directive 98 / 27 / EC. Both the White Paper and the pre-draft directive focus on collective actions for damages.

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bb) Is there a need for distribution?

If collective litigation for damages is initiated as the adequate remedy for the harm sustained by a large number of victims and damages have indeed been awarded, the next policy consideration is to examine whether there is a need to proceed with the distribution of the proceeds collected. The Commission seems to answer this question to the affirmative, based on the argument that full compensation of victims is the primary and foremost guiding principle. In the same line, art. 5 (5) of the pre-draft directive was providing that “damages awarded in a representative action shall be distributed, to the largest possible extent, to the injured parties represented”, while it was allowed that part of the compensation award to be used in order to cover expenses reasonably incurred. In fact, the reply depends on the number and value of claims and, subsequently, to the form of collective redress chosen for their enforcement. If we accept that the prime objective of collectively pursuing a large number of small claims, is the law enforcement and not the reparation of each individual harm, there is no apparent compelling reason to insist on the distribution and to put forward a legal context for that. A number of practical difficulties confirm this reluctance. Obliging the qualified entity to distribute to the affected consumers the compensation awarded would force it to incur high administrative costs, evaporating thus the savings achieved through the procedural aggregation of the claims;88 on the other hand, it is far from certain that the harmed consumers will take the time to collect the low amount of the reparation or to redeem the coupon corresponding to it. Needless to say that practical difficulties increase in the context of an opt-out system, where the identification and the number of the victims as well as the reparation corresponding to each one to them, are difficult to be established. Thus, the reluctance observed in some national legal orders does not come as a surprise. For instance, s. 34a of the German GWB entitles certain organizations to sue the infringer of anticompetitive practice and to claim, as compensation, the illegal profit gained; however, the disgorged profits have to be surrendered to the federal budget.89 Neither Portuguese law, known for having introduced an avant-garde opt-out actio popularis, provides for a distribution system.90 Conscious of these obstacles, the Commission91 leaves limited space open for indirect distribution, e.g.

88 89 90 91

G. Wagner, (2011) 127 LQR, 76, D.P. Tzakas, CMLRev. 2011, 1150-1151. D.P. Tzakas, CMLRev. 2011, 1151. Ibid. See Staff Working Paper, SEC (2008) 404, para 47.

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through the method of cy-pres92 distribution or distribution to a public interest foundation. Whether the collected proceeds should remain wholly or partly in the entity’s hands or go to the public budget or whether they should, at least to certain extent, reach the pocket of the represented victims is a crucial policy decision which at the moment is addressed at national level. However, it should be more appropriate to set some common standards regarding mainly the circumstances rendering the direct distribution compulsory, the continuing monitoring of the designated entities (in particular if they are entrusted with the use of the compensation) and the court’s discretion to assess the adequacy of alternative use of funds.

cc) The Greek model as an example of good intentions

The Greek system, although some what unknown in the bibliography, contains a satisfactory mixture of the above elements: designated consumer associations, alternative remedies and various forms of collective redress. It will be shortly described below in order to illustrate that good intentions expressed in modern procedural techniques are not sufficient to ensure effective protection of victims of EU antitrust infringements.93 Art. 10 paras 15 and 16 of Greek Law 2251 / 1994 (as amended by Law 3587 / 2007) regarding the protection of consumers, includes concrete provisions related to the actions to be taken by consumers’ associations. Qualified consumers associations (fulfilling the criteria set by law and registered to the relevant Public Register) are entitled to exercise both a representative / collective and a group action. The first one aims at protecting in abstracto the general interests of the consumers. In this legal capacity, they may initiate four proceedings of collective redress. The first means consists in seeking an injunctive relief for the cessation or the prohibition of the illegal behavior. This may also include the destruction or the withdrawal of defective products or any other measure deemed appropriate. Secondly, the qualified associations can seek compensatory relief in the name of the consumers solely for the moral damage suffered due to the illegal behavior. Indicative criteria used by the competent courts for the determination of the compensation are the intensity of the violation and the growth and annual 92

93

Meaning that the damages are not distributed directly to the injured persons but are rather used to achieve a result which is a near as may be (Staff Working Paper, p. 18). For further reference, see X. Apalagaki, Legal protection of consumers – Consumer Associations, in E. Alexandridou (ed), Law of Consumer Protection, 2008, [in Greek], 549, 565ff.

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turnover of the defendant. Collective redress is also provided in the field of interim judicial protection. The last means aims at the issue of a declaratory judgment recognizing the consumers’ right for restoration of their damage owed to the illegal behavior. The decision rendered on the basis of a collective action has an erga omnes binding effect. On the other hand, any consumer association may legitimately represent identified members by exercising group actions before competent authorities and courts in the name and on behalf of the former in their capacity as consumers. The consumer associations are in this instance acting on a complementary basis, whereas the consumers themselves reserve the right to seek individual protection. The entities are entitled to request full compensation in the name of their members.

c) Issues requiring a uniform European approach Competition law infringements are treated in most national legal orders as torts, albeit specific,94 and take frequently the form of multi-state torts. Their cross-border elements raise conflicts-of-law questions and subsequently questions of interpretation of the relevant provisions of Rome II Regulation (art. 6), most of which are addressed and examined in this volume by experts of private international law. When discussing in particular the collective-redress mechanisms, the situation is far more complicated. In fact, the success of those instruments in protecting the interests of injured parties (either nationals or foreigners) from antitrust infringements affecting more than one countries, depend on clear answers regarding applicable law on many interlinked issues, like standing, acceptance of the collective redress mechanism as such, conditions of liability, identification of victims, nature and use of compensation; such issues, according to their qualification (which by itself seems a debatable subject), may be of a substantive or procedural nature, leading thus to the application of different laws, the law of the market affected or the lex fori. Therefore, it is argued in this paper that, in order to increase legal certainty and facilitate efficient access to justice throughout the European ter94

In contrary to what happens to traditional tort claims where only the interests of the claimant the defendant are taken into account, competition law violations present the particularity of affecting the interests of all participants in the relevant market, the purchasers and ultimate consumers and the economy in general. This aspect is inevitable reflected on conflict-of-law issues. Cf. D. Stamatiades, The private international law of unfair competition, XrID (Chronika Idiotikou Dikaiou) 2008, 3, 5-6 [in Greek].

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ritory, some degree of uniformity has to be achieved at least on the main axes of the collective redress model. Below are indicated some of those axes: The standing of the (designated) representative entities is one crucial issue, as it implies a two-level examination: whether the entity concerned (i.e. a consumer association) is lawfully constituted and designated, question which will be normally addressed by the law of incorporation, and whether such an entity has the right to sue before the a foreign civil court, question of a procedural nature which will be addressed by the lex fori.95 Fixing common standards regarding the profile of the entitled entities and the criteria of their designation would constitute a first step towards transparency, predictability and reduction of forum shopping. The Injunctions Directive is a good starting point, although extension is needed ratione materiae in order to cover damages actions for antitrust infringements and ratione personae in order to include in its protective scope victims other than the consumers. As far as competition law claims are involved, it is necessary to ascertain that trade associations (or any other form of SMEs associations) as well as national competition authorities will have standing to sue. The framework of the designation criteria should be more precisely designed than that of the Injunctions Directive, mainly regarding human resources, represented interests, organizational structure and funding, while a continuing monitoring should be established at national level, under the supervision of the Commission together with a withdrawal procedure for entities not fulfilling the criteria set.96 For the intra-community infringements, the drawing-up of a list of qualified entities serving as a proof of legal capacity to act is advisable, as it is already provided in the Injunctions directive. The available forms of collective litigation belong to the procedural matters, actually governed by the lex fori and tightly linked to the procedural autonomy of Member States. Although it is more complex than the previous issue and despite the hostility expressed by the European Parliament against the opt-out system, one could envisage a common legislative approach at the EU level inviting national legislators to leave space for action on behalf of identifiable victims, for instance by entrusting the initiative of such pro95

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The inadequacies arising from the application of that law could be mitigating by reference to the principle of effectiveness of EU competition law. Under this approach, similar conditions of certification would allow standing before the national court of another MS. See on this point and on other issues of applicable law, D. P. Tzakas, in J. Basedow / St.Franck / L. Idot, International antitrust litigation, 172-175. Cf. Directive 2009 / 15 / EC on common rules and standards for ship inspection and survey organizations and for the relevant activities of maritime administrations (EE L 131 / 28.5.2009).

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ceedings to a limited number of entities or by submitting the exercise of the proceedings to a prior court approval. Art. 5 (2) of the pre-draft seems to carefully drive towards that direction. The distribution and, generally, the use of compensation awarded is another uncomfortable issue as it may act as a disincentive to act before foreign courts.97 If the question is addressed as a procedural one, the lex fori would be applicable (in such a case, exercising an action before a German court would offer no incentive for a foreign entity, if all proceeds collected had to be surrendered to the German public); if the issue is handled as part of the liability issues, therefore as a substantive question, the law of the affected market comes into the picture, while the law of incorporation may claim application if we consider the problem as an organizational matter. If the latter solution seems preferable at the actual stage of law, as it ensures predictability to the claimant entity, it does not provide sufficient certainty and calls for a uniform solution at EU level. This solution could incorporate more than one alternative uses, to the discretion of the claimant or depending on the circumstances of each case. Obviously, the conditions of liability (illegal behavior, damages, fault, causal link) are substantive questions to be resolved by the law prescribed by art. 6 (3) of Rome II regulation. However, it is reminded that lack on uniformity on some major issues (quantification of damages, identification of victims in relation to the passing-on defense) may seriously undermine the efficiency of any procedural design of collective litigation. The Commission’s proposal for a new directive on damages actions for infringement of competition rules, adopted after some years of inaction in this area, is a good sign to the right direction, albeit not sufficient.

4. Conclusions Although the current trend is to place emphasis on the need for a horizontal approach of the collective redress mechanisms, it is equally true that some areas present particularities that should not be overlooked. Competition law claims is an illustrative example of this observation. This does not run counter to the idea of a horizontal legislative framework but it does underline the need to introduce separate articles, chapters or instruments to address the problems met in certain sectors. Substantive law difficulties regarding the establishment of liability and harm incurred (i.e. passing-on, quantification of damages), wide range of 97

D. P. Tzakas, in J. Basedow / St.Franck / L. Idot, International antitrust litigation, 180-183.

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potential victims (consumers and SMEs) with differing interests at stake and enforcement obstacles mainly related to the multiplicity of enforcing agents and the mixture of public / private enforcement are some of the specificities accompanying the damages actions for antitrust infringements. Thus despite, or in addition to the solutions proposed for problems generally met in collective litigation and requiring a certain degree of uniformity at the European level, more tailor made solutions are also expected. The enhancement of the national competition authorities to act as representative entities or to facilitate consumers’ compensation (taking into account voluntary payments in the context of sanctions, consolidating damages) is one of them; the express recognition of the binding effect of national competition authorities’ decisions in order to facilitate follow-on actions before the national or foreign courts is another one.98 All solutions have to be balanced and pragmatic; that means that respect of European legal tradition should not hinder a realistic design (for instance, instead of prohibiting or ignoring the funding of representative entities, it should be preferable to monitor it, as is more that certain that the legal vacuum will be filled by market geniality99). It means also that uniformity through setting of common standards should be combined with a wider discretion of national courts in the management of the collective litigation.

98 99

See EP Resolution 2012, para 17, OFT Discussion Paper, 2007, para 6.12. Actually, private undertakings purchase damage claims from a multitude of victims, they quantify them and proceed to the (collective) enforcement or to an out-of-court settlement. A characteristic example is the Belgian Company CDC (Cartel Damage Claims).

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The Emerging EU Legal Regime for Collective Redress: Institutional Dimension and Its Main Features Lukasz Gorywoda* 1. Introduction “Collective redress” – the EU answer to the U.S. class action – has been a high priority on the Brussels policy agenda for the last couple of years and is currently a hotly debated topic. The huge interest that the European Commission’s 2011 consultation on general principles of the proposed mechanism of collective redress has attracted, with 18929 stakeholders submitting their responses,1 attests to that. There are at least four reasons to explain such an enormous public interest in the emerging European legal regime for collective redress. First, access to courts for individuals is far from perfect. No one goes to court if she has been ripped off a small amount as the cost of litigation is likely to outweigh the sum of potential recovery. Arbitration is costly so it is not a solution either. Small but legitimate claims find no recovery and “rogue traders” continue their wrongdoing. Second, collective redress is also a means to preserve judicial resources. Low-value and negative-value claims are not the only explanation of the current EU obsession with how to procedurally aggregate individual claims. Although all individual claims are viable, judicial resources are limited. Collective redress provides a handy procedural mechanism to combine many stand-alone cases into one lawsuit.

*

1

The author worked within the project that led to the publication of this book at the Université libre de Bruxelles. Thanks to participants of the project conferences in Cyprus (September 2011) and Brussels (April 2012) for the comments. The author would also like to thank Arnaud Nuyts and Nikitas Hatzimihail for valuable discussions. Responsibility is his own. All responses are available at ec.europa.eu / dgs / health_consumer / dgs_consulta tions / ca / replies_collective_redress_consultation_en.htm (last visited 25 March 2013).

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Third, in the specific EU setting collective redress performs the function of enforcement mechanism of EU law. Collective redress is not only about addressing common questions of fact and law in an efficient and logical way that does not use too much of the resources available to litigants and courts. This procedural mechanism is also used to pursue wider public goals. Aggregating individual claims is of interest to the regulators. Collective redress is used to strengthen the enforcement of EU law.2 Thus, it furthers the objective of market integration in a decentralized, litigation-based way. Finally, the debate on collective redress, which in the field of consumer and competition law is likely to produce “tangible” legislative results, is closely followed by the business sector. Businesses are afraid of having another regulatory check on their activities because it can subject them to potentially massive damage exposure. A legal possibility for plaintiffs’ lawyers to leverage at the European level unmeritorious cases into “blackmail” settlements, where business-defendants would be forced to settle to avoid the costs and risks of class proceedings, keeps the business sector on a proper lookout. This paper summarizes the legislative developments and characterizes the emerging EU regulatory regime of collective redress. It develops in the following way. Section II shows the institutional patchwork within which the collective redress has been developing. Section III reviews three main features of the emerging EU regime. Section IV concludes.

2. Institutional Dimension of the Emerging EU Regime of Collective Redress Institution-wise, the work on collective redress has been carried out in a rather uncoordinated way by two Directorates General of the European Commission: DG SANCO (Health and Consumer Protection) and DG COMP (Competition). To prevent further uncoordinated developments, in late 2010 these two DGs were joined by DG JUSTICE (Justice, Fundamental Rights and Citizenship) to develop a “horizontal” approach to collective redress. European Parliament also got interested in collective redress and joined the work in early 2012. What needs to be remembered is that more than half of Member States have their local systems of collective redress,3 2

3

See European Commission Staff Working Document, Public Consultation: Towards a Coherent European Approach to Collective Redress, SEC(2011) 173 final (4 February 2011). See, e.g., Christopher Hodges, Current Discussions on Consumer Redress: Collective Redress and ADR, at 4, paper presented at the Academy of European

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so the EU legislator is a relative “newcomer” to the field of aggregating individual claims.

a) Collective Redress Policy Developed by DG SANCO DG SANCO is forerunner in the work on collective redress. As a result of its efforts, in 1998, the Directive on Injunctions4 was adopted. The Directive introduced a procedure enabling designated bodies, such as consumer associations and public authorities, to stop the infringements originating from abroad. Thus, it is applicable to extraterritorial infringements of EU consumer law, i.e. those that have the effects in a Member State other than that in which they originate. Public enforcement of EU consumer law was strengthened in 2004 by the Regulation on Consumer Protection Cooperation.5 This Regulation allows named national authorities to request another Member State authority to act on an infringement. However, neither the Directive on Injunctions nor the Regulation on Consumer Protection Cooperation provides for compensation of the harm suffered by individual consumers. These two existing instruments only provide for injunctive relief and are not, strictly speaking, measures of collective redress. DG SANCO got into the proper business of collective redress in 2007, when it commissioned five studies6 to back up its future legislative work. It did not take much time to have the first result of the DG SANCO’s work out. In March 2008, DG SANCO issued a consultation on benchmarks for the legislative proposal on collective redress for consumers and published

4

5

6

Law, Annual Conference on European Consumer Law (Trier, 13 October 2011), available at www.csls.ox.ac.uk / documents / 1109TrierCOLLECTIVEREDRESS ANDADR.pdf (last visited 20 February 2013). Directive 98 / 27 / EC of the European Parliament and of the Council of 19 May 1998 on injunctions for the protection of consumers’ interests, OJ L 166, 11.6.1998, p. 51. It was repealed in 2009 and replaced by the Directive 2009 / 22 / EC of the European Parliament and of the Council of 23 April 2009 on injunctions for the protection of consumers’ interests, OJ L 110, 1.5.2009, p. 30. Regulation (EC) No 2006 / 2004 of the European Parliament and of the Council of 27 October 2004 on cooperation between national authorities responsible for the enforcement of consumer protection laws, OJ L 364, 9.12.2004, p. 1. Those studies can be accessed at ec.europa.eu / consumers / redress_cons / col lective_redress_en.htm (last visited 20 February 2013).

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responses later that year.7 In November 2008, it published Green Paper on Consumer Collective Redress.8 Green Paper put forward four options for the reform: (1) lack of EU action and reliance on existing national and EU measures; (2) cooperation between Member States to open up national systems of collective redress to consumers from other Member States; (3) mix of policy instruments to attack the main barriers to consumer redress such as high litigation costs, complexity and length of proceedings, including a possibility of extending the scope of the Consumer Protection Cooperation Regulation; and (4) binding or non-binding judicial collective redress procedure.9 Green Paper was also subject to consultation. Responses of stakeholders were published in May 2009.10 In the same month, DG SANCO drafted another consultation paper11 which this time listed five options for the reform. Those options were: (1) no action; (2) developing self-regulation; (3) nonbinding setting up of collective ADR schemes and judicial collective redress schemes in combination with additional powers under the Consumer Protection Cooperation Regulation; (4) the same as (3) but binding; and (5) an EU-wide judicial collective redress mechanism including collective ADR. The consultation ran until 3 July 2009.12 After this hectic 2007-2009 period we had to wait until February 2011 for the publication of the consultation document “Towards a Coherent European Approach to Collective Redress,” discussed further in section C.

7

8

9 10

11

12

Feedback Statement on Draft Consumer Collective Redress Benchmark Consultation, available at www.ec.europa.eu / consumers / redress_cons / docs / feedback_ benchmark_en.pdf (last visited 20 February 2013). European Commission, Green Paper on Consumer Collective Redress, COM(2008) 794 final (27 November 2008). Green Paper, para. 4 at 7-14. They are available at www.ec.europa.eu / consumers / redress_cons / response_GP_ collective_redress_en.htm (last visited 20 February 2013). Consultation Paper for Discussion on the Follow-up to the Green Paper on Consumer Collective Redress, available at www.ec.europa.eu / consumers / redress_ cons / docs / consultation_paper2009.pdf (last visited 20 February 2013). Overview of the results of the consultation is available at www.ec.europa.eu / con sumers / redress_cons / docs / overview_results_coll_redress_en.pdf (last visited 20 February 2013).

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b) Collective Redress Policy Developed by DG COMP DG COMP has been also very active in its work on procedural aggregation of individual claims. It explicitly addressed collective redress in the White Paper on damages actions for breach of antitrust rules published in April 2008.13 The work on collective redress in the competition sector is closely linked to the issue of private enforcement of EU competition law. Regulation 1 / 200314 decentralized enforcement of EU competition law. It provided a possibility of enforcement through litigation between private parties before national courts as a complementary mechanism to enforcement by national competition authorities. Collective redress aims at improving the effectiveness of private enforcement of EU competition law. Private remedies supplement the mechanism of public enforcement of EU law. In Courage, the ECJ observed that a private right of action “strengthens the working of the competition rules and discourages agreements or practices, which are frequently covert, which are liable to restrict or distort competition.”15 In Manfredi,16 the ECJ confirmed that individuals and businesses who suffer harm as a result of a breach of EU competition law have a right to claim compensation. However, the legal framework is not effective enough so many claims are not pursued. In its 2005 Green Paper17 DG COMP demonstrated that lack of effectiveness of the private enforcement system is due to various legal and procedural obstacles in the Member States’ laws on actions for antitrust damages before national courts. In the 2008 White Paper, the Commission stressed the need of “mechanisms allowing aggregation of the individual claims of victims of antitrust infringements.”18 The White Paper proposed two complementary collective redress mechanisms: (1) representative actions brought by “qualified entities” (e.g. consumer associations, state bodies or trade associations) on behalf of identified or, in limited cases, identifiable victims; and (2) opt-in collective ac13

14

15 16

17

18

Commission of the European Communities, White Paper on Damages Actions for Breach of the EC Antitrust Rules, COM (2008) 165 fi nal (2 April, 2008). Council Regulation 1 / 2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the EC Treaty, OJ L 1, 4.1.2003. Case C-453 / 99, Courage Ltd. v. Crehan, 2001 E.C.R. 1-06297, para. 27 (2001). Joined cases C-295 / 04 to C-298 / 04, Manfredi v. Lloyd Adriatico Assicurazioni SpA, 2006 E.C.R. 1-06619, para. 91 (2006). Commission of the European Communities, Green Paper on Damages Actions for Breach of the EC Antitrust Rules, COM (2005) 672 final (19 December, 2005). White Paper, para. 2.1 at 4.

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tions brought by the victims who have expressly decided to combine their individual claims into one single action. In line with the Manfredi case,19 it recommended that damages should be limited to the amount of actual losses the plaintiffs suffered, including lost profits.20 The White Paper recommended a combination of representative actions brought by qualified entities rather than individual plaintiffs and an opt-in model. In March 2009, the European Parliament adopted an opinion in support of the White Paper.21 The Commission also prepared a Draft Directive on damages for breaches of competition law.22 However, although it seemed that the 2009 Draft Directive had reached an advanced legislative stage, it was removed from the legislative agenda. But the new 2013 Proposal for a Directive, still in line with the previous case law directly puts forward that “[i]t follows from the direct effect of the prohibitions laid down in Articles 101 and 102 of the Treaty that any individual can claim compensation for the harm suffered, where there is a causal relationship between that harm and an infringement of the EU competition rules.”23 What is more, it explicitly says that “[c]ompensation for harm caused by infringements of EU competition rules cannot be achieved through public enforcement [because] [a]warding compensation is outside the field of competence of the Commission and the NCAs and within the domain of national courts and of civil law and procedure.”24

19 20 21

22

23

24

Manfredi, paras. 95 and 97. White Paper, para. 2.5 at 7. European Parliament resolution of 26 March 2009 on the White Paper on damages actions for breach of the EC antitrust rules (2008 / 2154(INI)). European Commission, Proposal for a Council Directive on rules governing actions for damages for infringements of Articles 81 and 82 of the Treaty (unpublished); for a discussion of the draft directive see various contributions in The International Handbook on Private Enforcement of Competition Law (Albert A. Foer and Jonathan W. Cuneo, eds., 2010). Explanatory memorandum to Proposal for a Directive of the European Parliament and of the Council on certain rules governing actions for damages under national law for infringements of the competition law provisions of the Member States and of the European Union, Strasbourg, 11.6.2013 COM(2013) 404 fi nal 2013 / 0185 (COD), at 2. Id.

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c) The Joint Work of the European Commission: Towards a Horizontal EU Legal Framework As we can see, there has not been much coordination between the actions of DG SANCO and DG Competition. Lack of coordination definitely affected coherence of the proposals for legislative action. To overcome this, President Barroso instructed the Commissioners for consumer affairs and competition to work together with the Commissioner for justice on a new consultation exercise.25 The joint action of the EU institutions was expected. In October 2010, Vice-President Reding (DG JUSTICE), Vice-President Almunia (DG COMP) and Commissioner Dalli (DG SANCO) underlined in their Joint Information the need for a coherent European approach to Collective Redress.26 A joint consultation on collective redress, “Towards a Coherent Approach to Collective Redress,” was published in February 2011.27 The consultation attracted great interest, ranging to almost 20 000 of responses.28 In the 2011 consultation paper, the Commission defined collective redress very broadly. In its view collective redress encompasses “any mechanism that may accomplish the cessation or prevention of unlawful business practices which affect a multitude of claimants or the compensation for the harm caused by such practices. There are two main forms of collective redress: by way of injunctive relief, claimants seek to stop the continuation of illegal behaviour; by way of compensatory relief, they seek damages for the harm caused. Collective redress procedures can take a variety of forms, including out-of-court mecha-

25

26

27

28

See Christopher Hodges, Developments in Collective Redress in the European Union and United Kingdom, at 2, available at www.globalclassactions.stanford. edu / sites / default / files / documents / 1010%20Class%20Actions%20UK%20 2010%20Report.pdf (last visited 20 February 2013). Joint information note by Vice-President Viviane Reding, Vice-President Joaquín Almunia and Commissioner John Dalli, Towards a Coherent European Approach to Collective Redress: Next Steps (5 October 2010), available at www.ec.europa. eu / transparency / regdoc / rep / 2 / 2010 / EN / 2-2010-1192-EN-1-0.Pdf (last visited 20 February 2013). Commission Staff Working Document, Public Consultation: Towards a Coherent European Approach to Collective Redress, SEC(2011) 173 fi nal (4 February 2011). Responses to the consultations are available at www.ec.europa.eu / competition / consultations / 2011_collective_redress (last visited 20 February 2013).

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nisms for dispute resolution or, the entrustment of public or other representative entities with the enforcement of collective claims.”29 This broad definition of collective redress is important for two reasons. First, it is probably the first attempt to define this concept at the EU level. Clarification what collective redress means may contribute to the harmonization of enforcement practices and cooperation between the relevant enforcement bodies.30 Second, it manifests an open approach of the Commission to collective redress, in a sense that a variety of arrangements – be they judicial, out-of-court or administered by public regulators – that seek either injunctions or damages can be caught under its legislative program. The European Parliament joined the coordinated work of the Commission. In February 2012, it adopted a resolution welcoming the establishment of non-sector specific common principles.31 To prevent forum shopping, the European Parliament recommended a scheme for all type of claims,32 which is a significant departure from the position taken in the 2008 White Paper that limited the collective redress scheme to antitrust claims.33 It also observed that “access to justice by means of collective redress comes within the sphere of procedural law.”34 Because of the importance of this policy, the European Parliament was “concerned that uncoordinated EU initiatives in the field of collective redress [would] result in a fragmentation of national procedural and damages laws, which [would] weaken and not strengthen access to justice within the EU.”35

29

30

31

32 33 34 35

Towards a Coherent European Approach to Collective Redress (4 February 2011), 1.2 at 3. With respect to the concept of “collective redress” this point was made in Marek Sofjan, Lukasz Gorywoda and Agnieszka Janczuk, ‘Taking Collective Interest of Consumers Seriously: A View from Poland’ in: New Frontiers of Consumer Protection: The Interplay Between Private and Public Enforcement (Fabrizio Cafaggi & Hans-W Micklitz (eds.) 2009) European Parliament resolution of 2 February 2012 on ‘Towards a Coherent European Approach to Collective Redress’ (2011 / 2089 (INI)). Id., item 26. See, Hodges, supra, n. 4. Id., item 15. Id., item 15.

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d) National Models of Collective Redress More than half of the Member States already have developed their own procedural solutions for dealing with mass claims.36 National mechanisms of collective redress vary considerably. For example, whereas in some Member States (e.g. in the UK) collective proceedings can be initiated by individuals, in others (e.g. in France) they can be brought only by accredited bodies. Some systems envisage an opt-in mechanism (e.g. Poland) but others provide for an opt-out (e.g. Portugal). Recently (January 2013), the U.K. announced plans for reforming its private enforcement regime. One of the most important features of this reform is a plan of introducing the opt-out collective settlement regime.37 Important collective redress procedures have developed in the Netherlands. There are two procedures in the Netherlands. First, there is a representative group action for injunctive or declaratory relief and not for monetary damages. The second is a settlement approval mechanism that envisages judicial approval of out-of-court settlements. The rules governing this settlement mechanism were adopted in 2005 and are governed by the Wet collectieve afwikkeling massaschade (WCAM).38 This judicial settlement mechanism works as follows. To initiate the WCAM procedure there has to be a settlement between one or more associations or foundations, representing the interests of the victims, and the party or parties that have allegedly caused harm. Once they reach the settlement agreement, they can request the Amsterdam Court of Appeal to declare it binding on all injured parties falling within the scope of the settlement. The Netherlands is the only jurisdiction in Europe with a procedure to have a collective settlement agreement declared binding.39 If settlement is declared binding, it will apply to all the injured parties, regardless of 36

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For comparative references see Deborah Hensler et al. (eds.), The Globalization of Class Actions, (SAGE Publications, Thousand Oaks, California 2009). For an overview see Stephen Wisking, Kim Dietzel and Molly Herron, Competition Law Class Actions: The UK Government Announces Far Reaching Reforms, Competition Law Insights (19 March 2013), available at www.herbertsmithfreehills. com / - / media / Files / PDFs / 2013 / Competition%20law%20class%20actions.pdf (last visited 25 March 2013). More on the opt-out characteristics of this mechanism see Rachael Mulheron, The Case for an Opt-Out Class Action for European Member States, 15 Columbia Journal of European Law 409, 425- 426 (2009). Ruth E. Harlow and Jaap J. Kuster, The Dutch Collective Settlement Decision in Converium: How Strong a Tool for Global Securities Class Pay-Outs? (2012) 9 Securities Litigation Report.

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whether they are known or unknown and of whether they reside in the Netherlands or abroad. There is a possibility to opt-out but it has to be made in a timely manner, determined by the Court. The WCAM judicial settlement procedure has been used for approval of several international securities fraud settlements. It has been used for an approval of the Royal Dutch / Shell Petroleum settlement on behalf of nonU.S. investors in 2009. Although the U.S. court declined jurisdiction over the non-U.S. claims,40 the claimants found their way in the Netherlands. In May 2009, the Amsterdam Court of Appeal approved a $352 million securities fraud settlement against Royal Dutch / Shell Petroleum.41 In January 2011, this procedure was also used to settle the Fortis / Aegas class action.42 In this case, American investors for the first time used the WCAM Act in an attempt to resolve a securities fraud claim. It has been observed that WCAM gives an opportunity to the American claimants to go after European defendants in class litigation. As a result of the U.S. Supreme Court decision in Morrison v. National Australia Bank Ltd.,43 they would have been barred from pursuing their claims in the U.S. because they bought securities on European exchanges.44 Under WCAM, however, they could give it a try. An open question is whether U.S. courts would enforce such judgments. Recently, the WCAM mechanism has been used for an approval of a settlement by Converium Holdings, AG, a Swiss company now owned by SOCR, a French company. Procedural posture of this case is also interesting. 40

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43 44

In re Royal Dutch / Shell Transp. Sec. Litig. (Shell II), 522 F. Supp. 2d 712, 724 (D.N.J. 2007). Gerechtshof [Hof] [Court of Appeals] Amsterdam May 29, 2009, no. 106.010.887, (Shell Petroleum N.V. / Dexia Bank Nederland N.V.) (Neth.) (sworn translation), at 60-61, available at https: // www.royaldutchshellsetdement.com / Documents / EnglishJudgmentTranslation2009.pdf (last visited 20 February 2013). References to the WCAM settlements are taken from Michael Palimisciano, Going Dutch: The Effects of Domestic Restriction and Foreign Acceptance of Class Litigation on American Securities Fraud Plaintiffs, 53 Boston College Law Review 1847 (2012). Arrondissementsrechtbank [Rb.] Utrecht Jan. 10, 2011, (Stichting Investor Claims Against Fortis Foundation / Ageas N.V.) (Neth.) (writ of petitioners) (unofficial translation), at 1, available at www.mvestorclaimsagainstfortis.com / Attachment / 191_English%20translation%CC20of%CC20Writ%C00028785).PDF (last visited 20 February 2013). Morrison v. Natl. Australia Bank Ltd., 130 S. Ct. 2869, 177 L. Ed. 2d 535 (2010) Michael Palimisciano, Going Dutch: The Effects of Domestic Restriction and Foreign Acceptance of Class Litigation on American Securities Fraud Plaintiffs, 53 Boston College Law Review 1847, 1878 (2012).

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Securities fraud class action against Converium was filed in the U.S. The federal court in New York agreed to exclude non-U.S. investors from the class,45 who subsequently reached settlement in the Netherlands in January 2012.46 The Converium settlement is interesting because it demonstrates an “expansive” approach towards asserting jurisdiction by the Amsterdam Court of Appeal in WCAM proceedings. The settlement was approved although the case had only few connections with the Netherlands.47 Other settlements reached under WCAM are: the DES settlement in June 2006, the Dexia settlement in January 2007, the Vedior settlement in November 2007 and the Vie d’Or settlement in April 2009.48 An important question is whether the Dutch judgments will be recognized and enforced in other Member States and outside the EU. Brussels I Regulation, even in its Recast form, does not address judicially approved settlements but it provides a public policy exception to the recognition and enforcement of judgments. It has been argued that if adequate notice is given and no public policy arguments are raised against recognition of the judgment, a Dutch collective settlement agreement should be binding throughout the EU.49 There have been no challenges to WCAM settlements so far.50 Litigants may also refer to the IBA “Guidelines for Recognising

45

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In re SCOR Holding (Switzerland) AG Litig., 537 F. Supp. 2d 556, 569 (S.D.N.Y 2008). Gerechtshof [Hof] [Court of Appeals] Amsterdam Jan. 17, 2012, no. 200. 070. 039 / 01, (SCOR Holding (Switzerland) AG / Liechtensteinische Landesbank AG) (Neth.) (unofficial translation), at 11-12, available at www.cohenmilstein.com / media / pnc / 9 / media.1139.pdf (last visited 20 February 2013). See Ruth E. Harlow and Jaap J. Kuster, The Dutch Collective Settlement Decision in Converium: How Strong a Tool for Global Securities Class Pay-Outs? (2012) 9 Securities Litigation Report. For an overview of those cases see Karen Jelsma and Manon Cordewener, The Settlement of Mass Claims: A Hot Topic in the Netherlands, International Law Quarterly 13 (Summer 2011), available at www.hoganlovells.com / fi les / Pub lication / 035a19d4-5aa9-4e43-b651-363f3031a0b9 / Presentation / PublicationAttachment / 28345212-16e0-43be-9bcd-4199cce6ca23 / The_Settlement_of_Mass_ Claims_A_Hot_Topic_in_The_Netherlands.pdf (last visited 20 February 2013). Ruth E. Harlow and Jaap J. Kuster, The Dutch Collective Settlement Decision in Converium: How Strong a Tool for Global Securities Class Pay-Outs? (2012) 9 Securities Litigation Report. Id.

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and Enforcing Foreign Judgments for Collective Redress”51 when designing their enforcement strategies. To complete this brief overview, one should also mention the collective redress mechanism for investor claims in Germany. Investor collective claims are in Germany governed by the Kapitalanlegermusterverfahrensgesetz (Capital Market Investors’ Model Proceeding Act), which validity was in October 2012 extended by the German Parliament for another eight years.52 The German procedure resembles the U.S. class action model.53

e) Conclusion Collective redress is being developed by DG SANCO and DG COMP, and recently joined by DG JUSTICE. Because of the fragmented way the process has been carried out, so far, the emerging regime is sectoral. However, the experience with sectoral development of EU substantive private law shows that some institutional coordination is desired. Joining the work of all the relevant EU institutions, including the European Parliament, is a promising move.

3. The Main Features of the Emerging EU Regime of Collective Redress a) Collective Redress is Expected to Improve Enforcement of the EU Law The first feature of the emerging model of the EU collective redress is that it is strongly linked to the question of effectiveness of enforcement of EU 51

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IBA Legal Practice Division, Guidelines for Recognising and Enforcing Foreign Judgments for Collective Redress (16 October 2008). See Class Actions in Germany: KapMuG Extended Until 2020 – Modest Change of Scope, available at www.disputeresolutiongermany.com / 2012 / 07 / class-actions-ingermany-kapmug-extended-until-2020-modest-change-of-scope (last visited 20 February 2013). For an overview see Kapitalanlegermusterverfahrensgesetz: Looks as though it’s here to stay, available at www.disputeresolutiongermany.com / 2011 / 10 / kapital anlegermusterverfahrensgesetz-looks-as-so-it%E2%80%99s-here-to-stay (last visited 20 February 2013). For an English translation of the act see Global Class Actions Exchange available at www.globalclassactions.stanford.edu / sites / default / fi les / documents / Germany_Legislation_1.pdf (last visited 20 February 2013).

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law. Collective redress is aimed at increasing the effectiveness of EU law enforcement. The European Commission has always put a lot of emphasis on effective enforcement of EU law. Enforcement of EU law is functional to the operation of the EU internal market, as the Stockholm Program54 and the Europe 202055 strategy clearly indicates. One of the important pillars of the system is public enforcement, where the Commission assumes a prominent role as “guardian of the Treaties.” But the Commission is also aware that decentralized enforcement, through private actions, can improve the effectiveness of the EU law.56 The European Parliament also noticed the limits of public enforcement, but rather from a “citizens” or individual justice perspective. In its assessment of the existing EU law instruments, the Parliament observed that “public enforcement to stop infringements and impose fines does not of itself enable consumers to be compensated for damage suffered.”57 Member States could have reacted to the move towards private enforcement with surprise or anxiety because the dominant regulatory model in European countries seems to strongly rely on public regulatory oversight and enforcement. Collective redress is an instrument to strengthen the enforcement of EU law.58

b) Collective Redress is Expected to Improve Access to Justice As early as in the 1984 it was stressed that ‘[o]ne aspect of the Community’s concern for its citizens is its interest in access to justice, in particular the right to obtain a just and fair settlement of disputes arising out of ordinary

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Communication from the Commission, An Area of Freedom, Security and Justice Serving the Citizen, COM(2009) 262 final (10 June 2009); see the priority of “making life easier – a Europe of justice,” which suggests that proper enforcement of EU law will enable individuals and business “to take full advantage of the opportunities offered by the single market.” Id. at 5. Communication from the Commission, Europe 2020: A Strategy for Smart, Sustainable and Inclusive Growth, COM(2010) 2020 final (3 March 2010), which clearly says that the internal market is dependent on legal rules, id. para. 3.1 at 20. Joint Information Note, supra, n. 26 para. 3 at 3. European Parliament resolution of 2 February 2012 on Towards a Coherent European Approach to Collective Redress (2011 / 2089(INI)), item J. See European Commission Staff Working Document, Public Consultation: Towards a Coherent European Approach to Collective Redress, SEC(2011) 173 final (4 February 2011).

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consumer transactions.’59 In 1998 the European Commission acknowledged that access to justice for consumers in pursuing their complaints is imperfect and it might be useful to consider whether measures are needed to make it easier for consumers to take legal action collectively when they have suffered similar damages.60 Access to courts is relevant in many situations. The ongoing financial crisis is likely to generate a lot of mass claims. There are numerous cases awaiting in the banking, insurance, and investment fund sectors. Natural monopoly industries are a fertile ground for mass claims too. Most of us feel that we pay too much for telecom, electricity or cable TV bills. But we are unable to prove it on an individual basis at court. We feel that we are treated unfairly but there is no possibility to voice our concerns. The European Commission strongly links its program of developing the schemes of collective redress with the policy of increasing access to courts for small but legitimate claims.61

c) Collective Redress Should Not Incentivize Abusive Litigation Practices A distinct feature of the emerging EU regime is a strong distance from the prototype of collective redress: the class action. According to the European Commission “[a]ny European approach” must “avoid from the outset the risk of abusive litigation.”62 European Parliament also expressed intent not to adopt “a US-style class action system or any system which does not respect European legal traditions.”63 Indeed, it seems that no one in Europe wants to copy the American “ambulance chasers.”64 Thus, there is a trend to distinguish the EU reform from the U.S. class action prototype. The European Parliament made it clear that the U.S.-style class action is unlikely to be introduced. It frowned upon the following 59

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European Commission, Discussion paper: Consumer redress. Memorandum from the Commission, COM(84) 629 final (12 December 1984), at I. European Commission, Consumer Policy Action Plan 1999-2001, COM(98) 696 final (1 December 1998), at 18. Commission Staff Working Document Public Consultation: Towards a Coherent European Approach to Collective Redress, supra, n. 2. Id., at 9. European Parliament Resolution, supra n. 31, at para. 2. Chausseurs d’ambulances, The Economist (May 11th-17th 2013), at 70. For a nonacademic treatment of the reality of “ambulance chasing” lawyers see John Grisham, The Litigators (2012).

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characteristics of class action: (1) extensive pretrial discovery procedures, (2) punitive damages, (3) contingency fee arrangements, and (4) the U.S. legal system tradition that parties must bear their own legal costs regardless of the outcome of litigation. Aversion towards the U.S. class action prototype also explains why the EU legislature insists on the opt-in model for the future regime of the EU collective redress. European Parliament stated in its February 2012 Resolution that any European-wide system of collective redress “must be founded on the opt-in principle.”65 There is some reason for such an aversion towards the U.S. class action model. Many elements of the U.S. class-action system have created a litigation culture that is characterized by various litigation abuses. One of the U.S. law firms has rightly observed that if there were any economic incentives in the EU, the U.S. plaintiffs’ class-action “industry” would find a way to exploit the features of the system.66 However, the collective redress mechanism also has its virtues, which, as explained above, the European lawmakers plan to use.

4. Conclusion The European Commission has just published a set of horizontal, nonbinding principles for collective redress.67 It was much awaited. Recently, just before the EU action, European Consumer Organization (BEUC) issued a press release, criticizing the lack of judicial collective redress in Europe with respect to the breast implant scandal.68 In the new document the 65

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European Parliament, Resolution of 2 February 2012 on “Towards a Coherent European Approach to Collective Redress,” P7_TA(2012)0021, para. 20. See, Skadden, Response to Commission Staff Working Document Public Consultation: Towards a Coherent European Approach to Collective Redress (30 April 2011) at 2, available at www.ec.europa.eu / competition / consultations / 2011_collective_ redress / skadden_en.pdf (last visited 20 February 2013). Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, “Towards a European Horizontal Framework for Collective Redress”, Brussels, COM (2013) 401/2. BEUC stated: “The European Commission remains undecided on whether to introduce Collective Redress for consumers and the victims of such EU market malpractice. It’s efficient justice for victims and streamlined administration for our courts. Continued hesitation by the Commission while such scandals continue to occur is difficult to justify.” BEUC, Victims of breast implants scandal fight for compensation – Need for EU to better protect with Collective Redress, available at

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Commission wants to “optimize the interaction between public and private enforcement of the EU competition rules,”69 and “sees the advantage of following a horizontal approach in order to avoid the risk of uncoordinated sectorial EU initiatives and to ensure the smoothest interface with national procedural rules, in the interest of the functioning of the internal market.”70 The proposal is expected to create a unified European basis for collective claims which that be of particular importance because as the density of cross-border transactions grows, an increasing number of collective harm situations involves cross-border issues. Collective redress gets a more complex dimension when cross-border element is introduced. When parties come from different legal systems and seek a collective resolution of individual claims, then complexity is introduced. At present, there is no coherent EU legal framework for such cases. Instead we have a mosaic of national systems. This means that potentially multiple judicial forums can be engaged in cases arising out of common facts and deciding common legal questions. It does not only waste judicial resources and create uncertainty, but in addition can give rise to forum shopping. The possibility to file lawsuits in different fora with different applicable laws makes the choice of venue a matter of business tactics. This, in turn, can provide Member States with incentives to amend their laws to attract collective proceedings. For example, currently the Amsterdam Court of Appeal has been performing the role of the most favorable forum for the enforcement of foreign class action judgments in the EU. Forum shopping considerations should be taken into account by the European Commission. Regardless of whether a European regime for collective redress is created, the possibility of forum shopping should be addressed by the rules of private international law.

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www.beuc.org / BEUCNoFrame / Docs / 1 / IAKNNIFDNLADAKJDOINCOJKCP DW69DBY269DW3571KM / BEUC / docs / DLS / 2013-00253-01-E.pdf (last visited April 20, 2013). Explanatory memorandum to Proposal for a Directive of the European Parliament and of the Council on certain rules governing actions for damages under national law for infringements of the competition law provisions of the Member States and of the European Union, Strasbourg, 11.6.2013 COM(2013) 404 fi nal 2013 / 0185 (COD), at 4 . Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, “Towards a European Horizontal Framework for Collective Redress,” Brussels, COM(2013) 401 / 2 at 16.

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The Class Action Experience in Israel and the Value of Having a Representative with a Personal Claim Michael M. Karayanni 1. Introduction Consistent with its common law origins, Israeli civil procedure perceives civil actions as both individual and voluntary. Under these basic paradigms the plaintiff represents only his or her own interests and as a result the rendered judgment does not credit or oblige anyone else. The voluntary aspect of the civil process assumes that the plaintiff is also the sole owner of the claim: he or she is free to decide to initiate an action, to settle it or to give it up all together. No one else has the power to do so on their behalf. These two basic characteristics of the civil action differentiate a civil process from a criminal one. The latter is neither individual – the prosecution represents the interest of the public – nor is it voluntary – the prosecution is obliged to bring a criminal action no matter how uncomfortable the prosecuting authorities are about initiating the criminal proceedings. Given these basic notions of the civil action being individual and voluntary, class actions in Israel (as I suspect in many other places as well) have been perceived of as exceptional. The class action is neither individual – the class representative (and attorney) represents all other class members with the final judgment being res judicata for and against all, nor is it voluntary – the action is essentially forced on the class members by the class representative. It is not surprising, therefore, that the initial attitude towards class actions in Israel was to eschew the procedure.1 However, as the years went by, the judiciary as well as the executive branch of the government became more aware of the virtues of class actions.2 The legal profession also 1

2

See Amichai Magen and Peretz Segal, Israel, in The Globalization of Class Actions 244 (Deborah R. Hensler et al. eds., 2009). The extended version of this Report can be found in http: // www.law.stanford.edu / library / globalclassaction / PDF / Israel_ National_Report.pdf (hereinafter Magen & Segal, Extended Report). See Stephen Goldstein, Notes on the Class Action Law 6 Alei Mishpat 7, 10 (2007) [Hebrew]. At first, the State Attorney Office was hesitant, and even opposed to

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saw in the procedure a powerful legal instrument and pushed for changing the initial position. The history of class actions in Israel was a multilayered one. At first, courts attempted to apply a civil procedure rule that made it possible for a representative appointed by the court to argue before it on behalf of a large group of possible claimants. However, this mechanism did not do much to improve the process of class actions. For one thing, the rule itself was too broad in nature and scant in terms of how courts should handle such actions. Second, the rule, like many other Israeli civil procedure rules was imported from England where it was originally used for a purpose that is completely different from the modern use of class actions - namely, to handle actions in equity with implications for a large number of claimants in real property that the court wanted to hear but wanted to avoid having all of the claimants appear in the courtroom. In light of the civil procedure rule’s elusive nature, courts did not do much in order to facilitate class actions in Israel. To the contrary, they added a number of pre-conditions for certifying a certain action as a class action that effectively eliminated the process right from the start. In the late 1980s, the Israeli Ministry of Justice realized that class actions are reasonable, at least when they are properly regulated. It is probable that the primary motivation behind this realization was the quest to facilitate the enforcement of certain norms. Rather than having administrative agencies tirelessly labor for the enforcement of norms affecting the public at large, the class action that is initiated by a private party can be useful in this respect. In other words, the class action was perceived as a model of law enforcement by the private citizen. The result was a series of amendments to existing laws where it was perceived that class actions could facilitate the enforcement of norms with wide application, in spheres such as securities, consumer protection, competition, and more.3 Ultimately, the Knesset (the Israeli Parliament) adopted one general law on class actions:

3

the new legislation given the fact that the then existing regulation on class actions made it almost impossible to fi le class actions against the state or any of its agencies. The end result, as the following discussion will show, is that in the CAL, 2006, the State and State agencies generally were exposed to class actions but were granted certain protections not available to other class action defendants. The chapters regulating class action were added to the following law: Consumer Protection Law, 1968; Corporations Law, 1999 (formerly in Securities Law, 1968); Banking Law (Consumer Services) Law, 1981; Supervision of Insurance Business Law, 1981; Prevention of Environment Torts Law, 1992; Equal Payment of Salaries Law, 1996; Competition Law, 1988.

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The Class Action Law, 2006 (CAL, 2006).4 Section 1 of CAL, 2006 provides that the objective of the law is to provide a uniform set of rules for the filing and administration of class actions in order to improve the protection of rights and to specifically advance: (1) effectuation of the right of access to courts, especially for those segments of the population that encounter difficulties when coming to litigate their claims on an individual basis; (2) enforcement of the law and deterrence from its violation; (3) the grant of proper remedy to those injured from the violation of the law; (4) efficient, just and conclusive adjudication of actions. The following is a table indicating the number of class action files opened in the last ten years.5 Year

Number of Class Actions

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

122 130 145 130 96 66 179 225 235 368

The Israeli experience with class actions provides us with a unique opportunity to test some of the fundamental ideas of this complicated process. This article is divided into two major sections. In the first, I shall give an overview of the main features of the new Israeli law on class actions. In the second, I will discuss one major innovation and one major setback in the new law with reference to the question of whether the representative of the class should or should not have a personal cause of action in order to qualify as a class representative. It is hoped that this discussion will be instrumental in other countries that are considering the enactment of new procedural schemes on class action.

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See Alon Klement, Guidelines for Interpreting the Class Action Law 2006, 49 Hapraklit 131 (2007). The data was provided by the Office of Courts Administrator.

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2. The Main Requisites for Filing a Class Action under CAL, 2006 a) Preconditions aa) The Claim

The first main condition for filing a class action under CAL, 2006 concerns the claim for which the class action is brought. Section 3 of CAL, 2006 provides that a class action can be brought only under one of the claims provided in a special schedule (Schedule Two) that appears as an appendix to the Law itself. Eleven different claims exist in Schedule Two: (1) claims against suppliers according to consumer protection laws; (2) claims against insurers or insurance agencies; (3) claims against banks; (4) claims under the competition (antitrust) laws; (5) claims under securities laws; (6) claims related to environmental hazards; (7) claims related to discrimination in products, services and access to entertainment and public places; (8) employment discrimination claims; (9) certain claims of individuals with a handicap; (10) employment-related claims which fall under the exclusive jurisdiction of the Labor Courts; (11) claims against a government body to return unlawfully collected taxes, fees or any other payments. This list of claims is no doubt broad. However, what are left out are general tort claims, especially if filed against a defendant that has not supplied goods promised.6 It should be noted that Section 30 (2) of CAL, 2006, empowers the Minister of Justice to add additional clams to Schedule Two and in order to do so the Minister must gain the approval of the Knesset’s Constitution, Law and Justice Committee and consult with the Minister of Finance. However, under this section, the Minister of Justice only has the power to add new claims but not to abolish existing ones.7

bb) Standing

The person filing the class action claim must have proper standing. Section 4 of CAL, 2006 provides a list of litigants able to bring a class action. First and foremost, this section empowers an individual with a personal cause of action that is recognized under Section 3 to bring a class action. Additionally, and in respect of specific claims, institutions, governmental entities or private non-governmental organizations (NGOs) can file a class 6 7

Magen & Segal, Extended Report, supra note 1 at 13. Id. at 11.

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action if the cause of action is in the area of that entity’s scope of operation. One major restriction appears in the law concerning private institutions: they cannot belong to, or be affiliated with, a political party. Ordinarily, such institutions are labor unions, consumer protection groups and human rights organizations. According to general principles of civil procedure, foreign plaintiffs are free to access Israeli courts, as long as they are able to establish the international jurisdiction of Israeli courts to deal with the pending action. It is also noteworthy that rules of international jurisdiction in civil actions inquire into the connections of the defendant, rather than the plaintiff, to Israel, or to the cause of action. The main instrument for controlling forum shopping of foreign plaintiffs in Israeli courts is the doctrine of forum non conveniens that grants courts in Israel discretion to decline lawfully established jurisdiction. It is assumed that if an Israeli court finds the class action only tenuously connected to the country, making the filing of the class action in Israel a case of forum shopping, the court will in all probability resort to the forum non conveniens doctrine and decline jurisdiction.

cc) Procedure

The third major requirement for filing a class action under CAL, 2006 pertains to the issue of whether the class action procedure is the proper procedural mechanism for handling the adjudication of the claims. Section 8 contains these requirements, and they include that (1) the action raises common and substantial issues of law or facts and that there is a reasonable possibility that such issues will be resolved in favor of the class members; (2) the class action is an efficient and just mechanism for resolving the controversy; (3) there are reasonable grounds to believe that the interests of all the class members will be properly represented and managed in good faith. Certain exceptions exist under the law whereby even if all these conditions are met, the court is empowered not to certify the action as a class action. One major exception concerns certain defendants, such as governmental bodies or private institutions that provide basic services to the general public such as banks, insurance companies etc., as defined in Section 8(b) of CAL, 2006. Under this section the court can deny certification, or modify its conditions, if it comes to the conclusion the class action, or even its mere existence, will bring more damage to the public than reparation. An additional exception exists in respect of state institutions sued for the unlawful collection of taxes or the imposition of other fees. In such a case the court is not to certify the class action if the state institution has stopped the unlawful collection (Section 9). 193

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The court must also assess whether the class action is the more efficient and just method for resolving the dispute given the size of the suggested class and the scope of the action itself. No minimum size of the class is indicated in the law itself, yet it is assumed that the class is especially large, making joinder impracticable.8

b) Administering the Class Action Administering the class action under CAL, 2006 is a complex procedural operation, not much different, I believe, from any other legal system that has recognized the process. What is special about CAL, 2006 is its rather detailed feature: it has explicit provisions about each and every step of handling the class action by courts. In an effort to highlight the main provisions in CAL, 2006, I have made a distinction between two major stages: the first is the certification stage and the second is the actual adjudication of the class action.

aa) Certification

CAL, 2006 requires that a plaintiff moving to have the action being litigated as a class action file a special motion to the court by which the court is asked to certify the action as such (Section 5(a)(1)). At this initial stage the plaintiff must look into the book of class actions – which is a public record of all filed class actions maintained by the Office of Courts Administrator – and specify whether the pending motion for certification is identical or similar to existing class actions. CAL, 2006 has detailed provisions about maintaining this public record of class actions (Section 28) and for the orderly registration of each class action filed (Section 6). If the court finds that a class action already exists, the rule holds that the more recently filed class action is to be merged with the older one, unless the court finds it proper to instruct otherwise (Section 7). Within the certification process it is imperative that the court define the class itself (Section 10). CAL, 2006 specifically provides that no person whose cause of action matures after certification is to be included in the class itself (Section 10(a)). This provision is obviously meant to insure that only those who are able to demonstrate that they are among the class are actually included in the class.

8

Magen & Segal, Extended Report, supra note 1 at 16.

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A class member’s ability to determine that he or she is among the class is essential for the opting-out procedure as regulated in Section 11 of CAL, 2006. This section provides that once certification is afforded in respect of a certain class, all members of the class are assumed to have consented to filing the class action on his or her behalf, unless the member notifies the court that he or she wishes to opt-out of the class within 45 days from the date of making the certification public (Section 11(a)). In this latter case, the class member who has opted out is regarded as outside the ambit of rendered judgment, since under Section 24 of CAL, 2006 the class action judgment has a res judicata effect only in respect of the class members. CAL, 2006 envisions another mode of defining the class - that of optingin class members. Section 12 enables the court dealing with certification to order that class members in the present proceeding are those that specifically notify the court in writing of their willingness to be defined as such. From a reading of Section 12, it appears that the special circumstances that might bring the court to take such a step are those of a class action filed in respect of certain mass torts.9 Once the court certifies the class action, proper notification to the public is mandatory. Section 25 of CAL, 2006 gives the court wide discretion in ordering the specific type of notification.

bb) Adjudication

Once actual litigation of the class action begins, the ordinary rules of civil procedure will apply to the class action, unless special provisions exist in CAL, 2006. However, existing rules are not always adaptable to the class action proceeding. Indeed, Section 31 of CAL, 2006 authorizes the Minister of Justice to enact special regulations for effectuating CAL, 2006, contingent, in certain issues, upon such regulation gaining the approval of the Knesset’s Constitution, Law and Justice Committee. But the Minister of Justice has been reluctant thus far to enact such rules, thereby making it necessary for the courts to fill the gaps. One dilemma that the courts faced was the size of the fee to be paid to the court when filing a class action. Ordinarily, the plaintiff must pay 2.5% of the amount of the monetary claim in court fees, with half of that sum paid upon filing the claim. In class actions the amount of the filed claim can easily reach substantial amounts thereby making the fees the plaintiff must pay very significant. If the plaintiff, or rather the representative of the class is required to pay such a sum in advance, when filing 9

Goldstein, supra note 2 at 23. It should be noted, however, that Section 12 excludes the initiation of opt-in class actions in respect of securities and antitrust litigation.

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the class action, fees might prove to be a real obstacle for class actions. The Israeli Supreme Court discussed this issue in a pre-CAL, 2006 judgment and held that, for fee purposes, in class actions of aggregated monetary amounts, only the individual amount claimed for the representative, rather than the whole group, will be regarded as the amount of the action.10 Similarly, the Supreme Court also took the stand that pre-trial discovery rules may apply to the certification stage.11 It is thus hoped that more specific rules of civil procedure will be enacted in the future thereby making the actual procedure of handling the class action clear and predictable. CAL, 2006 includes a number of procedural rules related to the actual handling and adjudication of the class action. Most of these rules pertain to settlements and withdrawal of class actions. This issue will be addressed below. Here, however, I would like to highlight two important rules pertaining to class action adjudication. The first refers to the establishment of a special public fund whose sole objective is to assist class representatives in class action certification (Section 27). This section provides that a nine-member statutory committee is to oversee the operation of the fund. The second rule worth mentioning is contained in Section 15 of CAL, 2006. Under this section the court handling the class action is granted discretion in allowing a special appearance to be made in the proceedings by a class member, a public institution that ordinarily works in promoting public interests implicated in the class action, or a private organization that the Minister of Justice has recognized to have the right to appear under this section and whose objectives are implicated in the class action. These bodies are expected to assist in the efficient and just adjudication of the class action. Section 15 (c) of CAL, 2006 makes this provision applicable, mutatis mutandis, to the certification stage as well.

cc) Withdrawal and Settlement

In Israel, as in many other countries where class actions are recognized, the overwhelming majority of class actions come to an end with some form of settlement before final judgment.12 However, bringing a class action to an end by mutual agreement between the class representative (who is very much guided by his or her attorney) and the defendant can prove problem10

11 12

See Stephen Goldstein, Class Actions in Israel, in Israeli Reports to the XIII International Congress of Comparative Law 45, 59-60 (Celia Wasserstein Fassberg ed., 1990). Magen & Segal, Extended Report, supra note 1, at 33-34. Goldstein, supra note at 20.

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atic in two different scenarios. The first is when the representatives relinquishes too much on behalf of the class but secures a generous reward for him / her-self and for the attorney handling the case on its behalf. Given the substantial sums usually claimed in the class action, the defendant will willingly agree to a generous award in return for the substantial reduction of the award in terms of the class. If such a settlement proceeds without outside supervision and control, class actions can prove to be ineffective in effectuating norms and lose much of their deterrence. One should also mention that the settlement in this regard can take the form of the representative withdrawing the class action from the court docket all together, with the payment passing from the defendant to the representative and the attorney in a private agreement that is concealed from the court and the class. The second configuration that is worrisome is the opposite of the first. It is assumed that the class action is groundless, but the defendant is nevertheless willing to settle in order to avoid the costs of a burdensome litigation and above all, to brush away litigation that is libelous to its reputation and poses a threat to its financial status. If such settlements are not prevented, they may lead to over-enforcement of norms, with the damages generated by the action passed on to the general public. CAL, 2006 is very much aware of the dangers associated with the withdrawal and settlement of class actions, and has thus provided an elaborate scheme of court supervision over such outcomes. In dealing with frivolous and vexatious class actions, CAL, 2006 utilizes the certification stage and requires that the class action be litigated by the representative. However, in reality, the action is litigated by the attorney appointed by the representative (Section 8(a)(4)). In certifying the class action the court must also find that there is a reasonable prospect that the issues raised in the class action will be resolved in favor of the class members (Section 8(a)(1)). It is hoped that if these two conditions are established, a court will be able to minimize the certification prospects of baseless class actions. It should also be noted that in making its assessment, the court can be assisted by the special appearance of neutral organizations, such as a public institution that oversees issues implicated in the class action (Section 15). Such an appearance might also be helpful in revealing the strength of the class action. In respect of a settlement or withdrawal of a claim when the class action is well founded but reasonable grounds exist indicating the defendant is taking advantage of the agency predicament of the representative and the attorney, CAL, 2006 provides a number of tools. First, CAL, 2006 sets a duty of care on the representative of the class (Section 8(a)(3) and (4)) and his / her attorney (Section 17) for the benefit of the class members. Second, the motion filed for approving the settlement must be supplemented by affidavits on behalf of the attorneys of the parties in which they furnish 197

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the court with all the relevant information concerning the settlement (Section 18(b)). Third, any outcome short of the final judgment in the form of withdrawal of the class action or an overall settlement requires the specific approval of the court (Sections 16 and 18). In making its decision and approving the settlement, the court is explicitly ordered to inquire whether the settlement is fair and reasonable in respect of the class members (Section 19(a)). To facilitate this task CAL, 2006 instructs the court to appoint an expert on its behalf who is professionally familiar with the issues raised in the class action to advise the court on whether to approve the settlement or not (Section 19(b)). The court can make an exception and not appoint the expert if it reaches the conclusion that such a procedure is not necessary under the special circumstances of the case. Fourth, CAL, 2006 provides an opting-out opportunity for class members at the stage of settlement. Section 18(6) provides that class members who do not wish to be included in the settlement can notify the court of their intention, and the court is empowered to permit their exit at this stage. Indeed, this procedure entails that a settlement must also be properly advertised to the public (Section 18(3)). Fifth, a class member and another private and public organization can also make a special appearance in the discussion relating to the approval of the settlement and object to the proposed settlement – a procedure that is also aimed at assisting the court in making its decision.

dd) State Institutions as Defendants in Class Actions

CAL, 2006, Section 29 categorically provides that the law is to apply to the State of Israel. The background of this provision is the legislative history of CAL, 2006 – the law as enacted was a compromise between a governmental legislative initiative that severely limited the filing of class actions against the State of Israel and any other governmental institution and a private legislative initiative that deemed the State and any of its institutions comparable to any other potential defendant.13 Under the current scheme, a class action against the State can be filed to obligate the State to reimburse the class members for unlawfully paid taxes, fees or other such payments. (Schedule Two, Section 11). Note that under this provision class members are not entitled to compensation, but only to the reimbursement of the unlawfully collected sums by the State. Reading through CAL, 2006 one finds additional limitations on this duty of reimbursement; Section 9(a) provides that in the case of a class action against the State under Schedule Two, Section 11, the court is to wait a minimum period of 90 days until it 13

Goldstein, supra note 2 at 10-11.

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considers certification. Section 9(b) then provides that the court is to refrain from certifying the action as a class action if the State institution has ceased unlawful collection. If the State institution did not cease collection and the court finds the collection to be unlawful, Section 21 provides that reimbursement is to be limited to a period of 24 months prior to the motion of certification. Another limitation that exists in CAL, 2006 in respect of a State institution is found in Section 3(a). According to this section, a class action against a State institution cannot be certified if it is brought for the failure of the State institution to oversee and supervise the actions of a third party who is the party that bears the immediate accountability for the damage brought to the class members. Yet, given the general provision that applies CAL, 2006 to the State, one can bring a class action against the State for compensation if the claim falls within any other section of Schedule Two. Though the prospects for this are dim given the fact that most of the claims are relevant to the actions of private parties, still, if a State institution is found to be culpable of discrimination on the basis of gender, for example, or unlawfully restricts access to a public place, then it is possible to bring a class action against the State institution since under such circumstances the claim is within the ambit of a claim included in Schedule Two. The court that has subject matter jurisdiction to deal with a class action against a State institution is the Administrative Court rather than the ordinary courts entrusted with subject matter jurisdiction of civil actions (Section 5(b)(2)).

dd) Judgment and Rewards

CAL, 2006, Section 24 prescribes that the final judgment in a class action establishes, for better or for worse, a res judicata in respect of the class members on whose behalf the class action was adjudicated. The court, however, is granted discretion to instruct otherwise. No specific guidelines exist as to when the court is to make such an instruction. The class action award and its distribution among the class members can raise different issues. CAL, 2006 was very much aware of such issues and included a number of important provisions. In granting an award against a State institution or any other corporation that provides services to the public at large, Section 20(4)(1) instructs the court to be aware of potential repercussions to the public at large which may ensue as a result. The court dealing with a class action is also granted wide jurisdiction in ordering the method by which the award is to be paid by the defendant. It can order the 199

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payment of certain sums of money to each class member,14 or any other method that can include certain reductions in prices regularly collected by the defendant (coupons), payment to certain funds for research and more. The guiding principle must always be that the method chosen by the court is compatible with the interests of the class members or the public at large. Upon concluding the class action CAL, 2006 prescribes a detailed provision as to rewarding both the class representative (Section 22) and his / her attorney (Section 23). In assessing both these awards the court is expected to consider, inter alia, the benefits brought by the class action to the class members and the class action’s significance for the public at large.

3. Section Two: Who Should Represent the Class and Why it Matters? There is no doubt that each of these features of the new Israeli law on class actions can be the subject of considerable commentary and as an example, one needs only look at the vast literature on class actions existing in the United States. The one issue however, that I would like to discuss in this article is whether the representative that comes forward in the name of the class should have a personal claim which is identical or similar to that of the class, or perhaps we can accept the reality of a claimless representative. The reason I chose to focus on this question as the centerpiece of this second, analytical section of the article is twofold. First, Israeli law has had a rather peculiar history in requiring the representative to have a personal claim to qualify as a representative. When the law was first enacted, the requirement was very strict but was eased with time, though not to the degree of its elimination. Second, discussing the relevance of this quality in the class representative makes it possible to focus on one central disparity in the law of class actions generally – which is strictly teleological in nature - between the objective we identify as justifying the class action and the pre-condition we set for its certification as such. I will claim that in order to attain the objectives that the class action is designed to achieve, it is essential that the legislature becomes mindful of the kind of conditions they set for allowing the action to take place.

14

A “fund distribution manager” can also be appointed by the court. See Magen & Segal, Extended Report, supra note 1 at 34.

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a) Historical Barriers The original rule that regulated class actions in Israel was Rule 29 of the Rules of Civil Procedure, 1984. This rule existed since the British Mandate over Palestine, as it was imported together with many other civil procedure rules from England in 1938. According to the scheme in this rule, if the number of interested persons in one claim is particularly large then, with the authorization of the court, they can be represented by one claimant. The Israeli Supreme Court first considered adapting this rule for modern class actions in Fränkische Pelzindustrie Märkle & Co. v. Rabinowitz.15 A group of 43 German entities claimed that they were victims of a scheme of commercial fraud committed by a number of Israelis. The claim stated that the Israeli defendants came to Germany, purchased by credit from the German group different quantities of fur from each but had no intention of actually paying for the merchandise. After they were tracked down in Israel, three among the German group came to Israel and sought to file a class action in the name of all 43 German entities claiming the debt. The class action was ultimately dismissed. The Court held that for three present claimants to qualify as representatives of the class they would need to prove that the personal claim of each is identical not only in terms of the cause of action but also in terms of the remedy they are seeking. Therefore, if the relief is monetary then each of the claimants must ask for damages of equal size. Since in the present case each of the German merchants was asking for a different sum of damages it was resolved that the personal claims are not identical and therefore the action cannot be certified as a class action. Another case rendered by the Israeli Supreme Court was even more conservative in terms of its willingness to facilitate the filings of class actions. In Attiya v. Municipality of Jerusalem,16 Mr. Attiya and a group of other claimants sought to have their claims certified as a class action on behalf of an entire Palestinian neighborhood in East Jerusalem. The claim was that the defendant was charging the residents of this neighborhood for water that they were not consuming. Supposedly the charge was not a great amount. In order to improve their chances of gaining a favorable judgment, the claimants submitted to the court that they announced the filing of this claim on behalf of the residents via the local mosque’s loud speakers and even attached a list with the names of all the residents. In terms of relief – by the time the case reached the Supreme Court the claimants were asking only for declaratory relief by which the municipality would state it illegally charged them, and injunctive relief, putting this practice to an end. Accord15 16

CA 86 / 69, 23 PD(1) 645 (1969). LCA 696 / 92, Takdin 92(2) (1992).

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ingly, the remedy was now made identical in terms of all the class. All of this did not help the claimants. The Court held that if one can identify all of the class members then they should all be joined as plaintiffs making the class action unnecessary. This approach to class action is no doubt conservative. It can be justified by the fact that courts were quite suspicious of the procedure and speculative about its economic implications. Yet, as time went by, administrative agencies in Israel became aware of the public utility of class actions and building on the experience of other countries, especially that of the United States, and decided to move ahead with some reform. As indicated, this reform came in the shape of new sections regulating class actions added to certain laws, the enforcement of which (or certain provisions in which) were felt to be appropriate to class actions. These sections managed to do away with some of the barriers set by the initial conservative approach to the procedure, mentioned above. For example, the fact that each of the class members can potentially claim a different amount of damages or that each of these class members can be personally identified were no longer impediments to the certification of the claim as a class action. The reason for this move is obvious. Were these conditions to be maintained it is questionable whether there would be any room for class actions in the first place. When a large number of people are affected by the defendant’s action it would be difficult, if not totally impossible, to find that the damage of each of the class members is identical. Given that monetary damages are a major incentive for filing the class action, the condition set in Rabinowitze essentially killed class actions in Israel before they were born. Thus, if the Israeli legislature was serious about promoting this procedure in Israel, this old pre-condition needed to be abolished, as indeed it was. Yet, there was one condition that the Israeli legislature did not do away with. This was the condition that required the representative to prove that he or she has a personal claim in common with the class. The leading decision in this respect is Barazani v. Bezek.17 The claim was based on a misrepresentation made by an Israeli company that provides phone services. In an advertising campaign for international phone service carried out by Bezek, it was stated that the company will charge its customers for the exact time the international call lasts, to the precise fraction of minutes. In the background was a practice by phone service providers to round the fraction of the minute upwards and charge the customers for that as well. As it turned out, the defendant did not live up to its promise and rounded fractions of minutes upwards and by doing so overcharged its customers. The representative claimant filed a class action on behalf of the defendant’s cus17

ACA 5712 / 01, 57(3) PD 385 (2003).

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tomers claiming monetary relief. Although the claimant appeared to have a solid case against the phone service provider, it lost at the certification level. It was determined that the claimant was a customer of the defendant before the advertisement. Therefore, the claimant could not prove that he was persuaded to become a customer due to the misrepresentation. He was a customer before and remained such irrespective of the advertisement. Yet, the cause of action that permits a customer to file a class action on behalf of the class requires that the class was misled and the Court held that this includes the representative claimant.18 Since the present claimant had no personal cause of action he failed to have the class action certified as such.

b) The Value of the Personal Claim in Negative-Value Class Action The question I would like to pose at this stage is whether such a condition, i.e., that the claimant should have a personal cause of action in order to represent the class is necessary? In order to properly answer this question we should first ask ourselves why we need the class action in the consumersupplier context, or any other context for that matter, when the claimants suffered de minimis damage on the personal level but if added up in terms of all individuals affected, it is substantial? As already noted, the class action brings to bear two of the most basic characteristics of the entire discipline of civil procedure, attributes that are apparent when differentiating the civil process from the criminal process: a) the civil proceeding is a voluntary act.19 The plaintiff is free to not initiate a civil action, and if he or she does, they are free to settle for part of the claim. There is no obligation under law that a plaintiff with a claim has a duty to initiate a civil proceeding in order to vindicate his / her rights. As Professor Jolowicz put it, “No creditor is obliged to call in the debt owed to him…;”20 b) the civil action is an individual action, meaning that the plaintiff is acting in his / her own interest and not on behalf of the interests of others.21 This second proposition follows from the first; if a plaintiff is empowered to file a claim in the name of another claimant then the action is no longer considered to be voluntary on the part of the other claimant. A civil claim is intended to be a selfish enterprise, otherwise it runs the risk of being dismissed whether for lack of a cause of action or for abuse of pro18

19 20 21

The Court reiterated the same position in CA 3955 / 04 Rayzel v. Bank Leumi of Israel, Ltd. J. A. Jolowicz, On Civil Procedure 21 (2000). Id. Id.

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cess. Though the legal process and the adjudicative philosophy, paradigms, theories and principles that inform the different legal systems can vary, the propositions just made are almost universal. The civil action must be voluntary and individualistic in almost every legal system in the world. Yet we all know that at times these different legal systems make concessions. If strictly followed, these rules can lead to injustice. Take for example, the case of a minor who does not have the legal capacity to bring a civil action by her or his own right since the law denies minors the capability of undertaking legally binding actions. As a result, procedure allows the minor’s guardian to bring a legal action on their behalf notwithstanding the fact that when such an action is filed it is neither voluntary (in respect of the minor), nor individual. Representative actions also take place in the handling of estates, of bankruptcies and the closing of companies. If we look into these instances we will also discover that as a result of some kind of “market failure,” it is better, or even necessary, that the action be brought by the representative rather than the original claimant. The category of cases I seek to deal with in this analysis is one where damage on the individual level is small, but if quantified on the group level, it is substantial. This category is typically referred to as that of consumer class actions or that of negative-value class actions.22 It includes instances where a large group of people has suffered individual damage of such small proportions that none would pursue individual litigation. Let us take as an example the case of a taxi company which overcharges its passengers by a couple of cents more than the rate fixed by the local regulator, and has been doing so for the past four years.23 A simple calculation proves that the cost of litigation (including the time and effort an individual claimant would need to invest) far exceeds any expected award. However, if no action is taken by any of the individuals affected, the taxi company will continue to get away with a considerable amount of unjust enrichment (in a major city this can be in the millions). Moreover, if no civil action is taken a state of under-enforcement will exist – the norm that society has determined to be obligatory is not fully enforced. The externalities of under-enforcement can be damaging to society as a whole: it can serve as an incentive for other suppliers who are similarly situated to our taxi company to overcharge consumers – a practice that will jeopardize our well-being both as a society as well as individuals. Traditionally, this problem of under-regulation has been treated by state institutions in charge of law enforcement. In fulfilling their public function, these bodies initiate criminal or administrative 22

23

See Martin H. Redish & Clifford W. Berlow, The Class Action as Political Theory, 85 Wash. U. L. Rev. 753, 762 (2007). Inspired by Daar v. Yellow Cab Co., 433 P.2d 732 (Ca. 1967).

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proceedings and, if successful, impose sanctions that, if tailored properly, remedy this market failure and optimize enforcement. But as regulation in almost every country in the world has grown immensely, making us all live in an age of “mega legislation and mega administration,”24 the existing public institutions cannot fulfill their function of regulation enforcement properly unless they become mega institutions as well. One way out of this conundrum is to privatize the function of regulation enforcement; the class action proceeding is one very powerful tool in this respect. By giving the power of filing the civil claim to a representative who in turn will file the claim on behalf of all those who suffered damage from the unlawful act of the common defendant, we will provide the incentive for initiating litigation. The final award from this litigation can be equal to the aggregate sum of the damages suffered by all consumers, which as stated, can be in the millions. If we make it possible for the representative, and more candidly, for the attorney handling litigation to receive a percentage of the final award as a fee or even as a prize, then not only will this proceeding be worthwhile and optimize enforcement in the pending case but might very well prove to be an incentive for seeking out other cases, thereby optimizing enforcement generally. We should also be cognizant of the shadow effect of such class actions, the mere fact that they exist will not only remedy a state of underenforcement in an ex-post manner, but can work to encourage enforcement ex-ante. The mere fact that the proceeding exists will make providers double check their compliance with the existing regulation and at any rate, deter them from noncompliance. The main purpose of the class action in this category is deterrence and correcting under-enforcement rather than to compensate the individual customer for the damages suffered. This is no doubt an oxymoronic statement given the fact that we are accustomed to thinking that by awarding damages we bring about enforcement. Yet, it is essential to underscore that these over-arching objectives are inherent in this category’s class of actions. If this assessment is correct then, in my view, it becomes clear that the claimant in negative-value class actions need not have a personal claim in order to qualify as the representative of the class. What purpose would a personal claim of a few dollars serve in such a class action? One can possibly argue that in mass torts class action (which are not the subject of this analysis) where the personal claim is substantial, that the requirement of having a personal claim is some kind of assurance that the representative will make a special effort to gain more for the class members since the gain 24

Mauro Cappelletti and Bryant Garth, Access to Justice and the Welfare State: An Introduction, in Access to Justice and the Welfare State 1, 13 (Mauro Cappelletti, ed., 1981).

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is also a personal gain. But if the claimant with the de minimis personal claim is willing to settle for one dollar for him or herself rather than having two dollars - is that a factor when as far as the representative is concerned, even the two dollar claim is a claim that he or she would never have considered filing on an individual basis. Additionally, the representative claimant in these class actions is either a passionate individual who seeks to vindicate the collective right of the class and who is willing to invest the time and effort to take on the collective fight – and if so, should we not applaud this representative irrespective of a personal claim, or is simply a straw claimant which the attorney doing the actual representation has randomly picked from the group – in which case his or her personal claim is equally insignificant. In short, if the primary objective of negative-value class actions is to deter the defendant and other defendants with similar economic power from not complying with regulation and in the process make huge gains, then it should not much matter if the representative has a personal claim or not. For one thing – the claim in such instances is also meaningless to the representative. The main objective of the class action here is to make the defendant pay for overreaching, beyond the norm. Given the insignificant personal claim of the class, this class action does not seek to personally compensate the class members for their individual damage, at least not in a direct manner. If the personal damage is that insignificant so as to make any personal civil suit unrealistic it can also be assumed that when the reward is rendered, the individual class members will not appear to collect either.

c) Has the Israeli Legislature Realized These Objectives in CAL, 2006? Let me start from the end – CAL, 2006 did realize these objectives but only partially. CAL, 2006 has made it possible for a non-profit organization that was established to serve a public cause and is not associated with a political party to represent the class. In order to qualify as such in the particular class action, one of the public causes that the NGO has taken upon itself must be connected to the cause of action of the class action.25 Another innovation in this respect is the empowerment of a governmental body that is designated to promote the issues involved in the class action to be a representative in a class action. However, I believe that this latter addition is of a symbolic nature. If public offices were willing to prevent defendants from violating the law, then they would have performed their duties and fine or indict 25

CAL, 2006, Section 4(a)(3).

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these bodies. The reason why the negative-value class actions were devised is to assist government regulators to enforce the norms. Making them class representatives is all well and good but on some level it is tantamount to adding insult to injury. In terms of private class representatives, CAL, 2006 prescribed that they can be “a person that has a cause of action….”26 This provision is a setback since it apparently prescribes that the representative should have a personal claim as a pre-condition for certification. But as already stated, this seems to be completely unjustified. The significance of negative-value class action objectives has far reaching ramifications not only on whether the representative should have a personal claim or not. Of relevance is also the issue of notification and opting out. In order to compensate somewhat for the divergence of the class action from the fundamental rules of civil procedure, and ostensibly pressure the representative to make the best job he or she can of representing the class, class members are routinely viewed as entitled to be notified of the class action and then granted the right to opt-out if they so desire. The assumption is that they are entitled to pursue an individual claim if they wish rather than risk the disadvantageous res judicata effect of the class actions. Though, if individual class members suffered such de minimis damage why should they bother leaving the group – the effort of drafting the letter on their part and the postage stamp might even exceed the value of their damage. And, should we even bother to notify each and every claimant – a notification that at times can be exceedingly expensive? CAL, 2006 realized some of these observations by granting the Israeli court wide discretion as to how to notify the class of the possible certification – but some form of notification was deemed to be necessary.27 Additionally, each class member has what seems to be an absolute right to opt-out of the class regardless of whether the class action is of the negativevalue kind.28 But consider, if the representation is deemed adequate in such a class action, then why make opting-out available, if and when any of the class members is willing to incur the cost and notify the court.29 Interest26 27 28 29

CAL, 2006, Section 4(a)(1). CAL, 2006, Section 25. CAL, 2006, Section 11(a). An argument can be put forward in this respect that there may be a class member with a substantial personal claim and as such, might be interested in pursuing an individual process rather than be part of the class action. However, my discussion here does not include such cases but those that are purely and clearly of negative value. Given that such class actions do have their own special concerns, I also think that it is proper that when a court is considering a class action that is largely composed of members with negative claims but suspects that it might also include

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ingly, CAL, 2006 prescribes notification to class members as well as another opportunity to opt-out (if, of course, the class member did not already optout) when a settlement is reached between the parties. However, if these measures are regarded as ineffective at the initial certification stage, then they must be regarded as ineffective at this later settlement stage as well.

4. Summary and Conclusions The basic argument that I sought to put forward in this article is that the handling of class actions should be mindful of the concrete objectives that this procedure is designed to attain. Here, I focused on one type of class actions - that of negative-value class actions. Preconditions that were perceived as traditionally required in a class action proved to be irrelevant in such actions. The Israeli experience shows that some of these traditional requirements were put to rest. Yet other requirements were maintained and became even more complicated in the new law, CAL, 2006. It is hoped that the Israeli legislature will realize that special types of class action also need special types of rules. Given that class actions are considered in many other countries around the globe, it is hoped that some of my observations here will be helpful for that experience as well.

members with some substantial personal claims that it defines the class to include only those that belong to the fi rst category of claimants.

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Class Arbitration in Europe? Luca G. Radicati di Brozolo 1. Introduction The interplay with arbitration may appear to be a fairly marginal issue in the debate on class actions that is gaining momentum in Europe.1 Yet, as the European Commission itself realizes, the topic deserves some consideration, were it only because of the importance of arbitration in business relations, for which it is the preferred dispute settlement mechanism and which operates strictly on a par with national courts.2 Another reason to consider the interplay between arbitration and class actions is that class arbitration is a feature – albeit a controversial one – of class litigation in the United States which, for better or for worse, is the archetype for all discussions on class actions, even if often in a negative sense. Even in the United States, where class actions are deeply engrained in the legal system and culture, class arbitration is fraught with problems,3 to

1

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See Commission Staff Working Document, Public Consultation, Towards a Coherent European Approach to Collective Redress, SEC(2011) 173 final, and the other contributions in this volume. The Commission’s paper contains only a passing reference to arbitration in § 19, which points to the need to give consideration to facilitating recourse to alternative dispute resolution in situations of multiple claims, without however taking into the account the specific features of arbitration compared to other ADR mechanisms. For this author’s views on the nature of international arbitration and of its relations with national courts and legal systems see L.G. Radicati di Brozolo, The impact of national law and courts on international commercial arbitration: Mythology, physiology, pathology, remedies and trends, Cahiers de l’arbitrage / The Paris J. of Int’l Arbitration, 2011, p. 663; L.G. Radicati di Brozolo, The Control System of Arbitral Awards: A Pro-Arbitration Critique of Michael Reisman’s ‘Normative Architecture of International Commercial Arbitration’, Arbitration – The Next Fift y Years, ICCA Congress Series No 16, Proceedings of the 50th Anniversary Conference, 2012, p. 74. G. Born and C. Salas, The U.S. Supreme Court and Class Arbitration: A Tragedy of Errors, Kluwer Arbitration Blog.com, July 1, 2011.

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the point of having been likened to a “mythical beast, half litigation and half arbitration and rarely seen”.4 The issues debated in the United States, and specifically by the case law including that of the Supreme Court which has ruled three times on class action arbitration,5 include the following. Is class arbitration possible in principle, or is there a fundamental incompatibility between the notions of arbitration and class action? In the affirmative, is a specific consent to such type of arbitration required? Are waivers of class actions in arbitration admissible? Who decides on these issues, the arbitrator or the court? The courts’ response to these issues, that go to the root of the relations between class actions and arbitration, is not clear cut. There is also little certainty on the myriad other more technical, but equally thorny, issues that arise at the crossroads of the two areas of law.6 It is not difficult to prophesize that the relations between class actions and arbitration will be at least as complex in Europe. At this point, when the entire discussion on the introduction of class actions at European Union and member State level is still embryonic, it would be premature to attempt

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G. Born and C. Salas, id. See Green Tree Financial Corp. v. Bazzle, 593 US 444 (2003); Stolt-Nielsen S.A. v. Animal Feeds Int’l Corp., 130 S. Ct 1758 (2010); AT&T Mobility LLC v. Conception, 131 S. Ct. 1740 (2011). See also D.R. Hutton v. Cuda, National Relations Board, Case 12-CA-25764 on which G. Born, NLRB Opens a New Chapter in Class Arbitration Saga, Kluwer Arbitration Blog.com, April 2, 2012. Two other cases on class arbitration are currently pending before the Supreme Court: Oxford Health Plans LLC v. Sutter, Docket No. 12-135; American Express Co. v. Italian Colors Restaurant, et al. (Docket No. 12-133). For thorough overviews of the problems of class arbitration, including those alluded to in this paper, see W.W. Park, La jurisprudence américaine en matière de “Class Arbitration”: ente débat politique et technique juridique, Revue de l’arbitrage, 2012, p. 507-538; S.I. Strong, From Class to Collective: the De-Americanization of Class Arbitration, Arbitration International, 2010, p. 493; S.I. Strong, Enforcing Class Arbitration in the International Sphere: Due Process and Public Policy Concerns, www.transnational-dispute-management.com, vol. 7, issue 1, April 2010; S.I. Strong, The Sounds of Silence: Are US Arbitrators creating internationally enforceable awards when ordering class arbitration in cases of contractual silence or ambiguity?, 30 Michigan Journal of International Law, 2009, p. 1017; S.I. Strong, Class, Mass and Collective Arbitration in National and International Law, Oxford University Press, 2013; B. Hanotiau, Complex Arbitrations: Multiparty, Multicontract, Multi-Issue and Class Actions, Kluwer, 2006, p. 257 ff.

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a comprehensive analysis of the problems of class arbitrations in Europe.7 This paper will therefore only provide some preliminary thoughts and point to the areas that need further reflection and possible interventions by legislators, arbitral institutions, the arbitration community and the drafters of arbitration agreements.

2. Class arbitration and multiparty arbitration At the outset it is important to distinguish between class arbitration in a strict sense and multiparty arbitration, including arbitrations with a large number of parties on one or the other side. Class arbitration properly called is an arbitration where one of the parties is a class, in the sense in which the term is used when referring to class actions before courts. This means that the parties are not identified individually, but only by reference to a certain factual and legal situation which is the subject of the proceedings (for example all the victims of a certain cartel, all the purchasers of a certain product, all the victims of a mass tort etc) and are represented in the proceedings by some of them or by a third party which is considered to act on behalf of all of them. In such cases the award is purported to bind all the members of the class. This type of action must be clearly distinguished from arbitrations where the parties, even if extremely numerous, are all directly party to the arbitration and are directly represented in the proceedings. A prominent example of this type of case is Abaclat and others v. The Republic of Argentina,8 an ICSID arbitration in which a large number of Italian holders of Argentine bonds – originally 180,000 and now 60,000 – claim compensation against the Republic of Argentina for its repudiation of its obligations under bonds issued by it. The same issue, albeit with much smaller numbers, arises is in two parallel cases brought by other groups of bondholders against Argen-

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For a preliminary view of class arbitration in Europe see G. Nater-Bass, Class Action Arbitration: A New Challenge?, Arbitration International, 2009, p. 671. See Abaclat [formerly Giovanni Beccara] and others v. The Republic of Argentina, ICSID case No. ARB / 07 / 5, decision on jurisdiction of August 4, 2011, available at http: // italaw.com / documents / AbaclatDecisiononJurisdiction.pdf, commented by S.I. Strong, Mass Procedures in Abaclat v. Argentine Republic: Are they Consistent with the International Investment Regime, III Yearbook of International Arbitration, June 2012 (forthcoming), (also available at http: // ssrn.com / ab stract=2083219).

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tina, one of which (Ambiente Ufficio v. Republic of Argentina9) has already decided on the issue with a very exhaustive and persuasive reasoning. In this type of case, including in particular in Abaclat as in the two parallel cases all the claimants were identified and represented in the proceedings. The two types of proceedings have points in common, such as for instance those relating to ascertaining the existence of consent, to the relations between the party or entity that organizes the action and to dealing with a large number of parties. And indeed, in the ICSID arbitrations involving the Italian bondholders Argentina tried to ingenerate confusion between the two types of cases in support of its objection to jurisdiction. There are, however, fundamental differences between them. The Abaclat type of arbitration is simply a more complex form of multiparty arbitration, which may result from the bringing or a large number of claims in the same arbitration or in the consolidation of a large number of different arbitrations. Multiparty arbitration is a well-known type of arbitration in relation to which there is now a considerable body of rules and case law.10 Class arbitrations in the proper sense are a completely new type of proceeding, particularly in Europe. This article will focus only on the problems of this type of arbitration, although, as mentioned above, some of the issues may be common.

3. The scope for class arbitration: what type of cases? There is an obvious threshold consideration when it comes to assessing the prospects of class arbitration in Europe, or anywhere else for that matter, and this relates to the types of case that could be the subject of such arbitrations. First of all, in Europe there is scarce likelihood of class arbitration in two areas where recourse to it is much debated in the US, i.e. consumer contracts and relations with employees. That is because in Europe there are considerable hurdles to the arbitrability of contracts with weak par-

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Ambiente Ufficio [formerly Giordano Alpi] and others v. The Republic of Argentina,ICSID, case No. ARB / 08 / 9, decision on jurisdiction of February 8, 2013 available at on the Icsid website. See also Giovanni Alemanni and others v. The Republic of Argentina, ICSID case No. ARB / 07 / 8. On multiparty arbitrations see for instance B. Hanotiau, supra note 6 and ICC Rules, Article 8.

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ties, particularly consumers and employees.11 Given this attitude, it is also unlikely that in Europe there will be attempts, such as those that have been the subject of US litigation, to use arbitration agreements, possibly coupled with waivers of class actions, as a way of preventing recourse to class actions in that type of case. Secondly, since arbitration is obviously possible only in the presence of an agreement to arbitrate, class arbitration is conceivable in practice only where there is a direct contractual relation between the members of the class (usually the plaintiffs) and the defendant. While recourse to arbitration is possible also in relation to claims in tort, in such cases the arbitration agreement will normally have to be entered into after the event purportedly giving rise to the liability has occurred. The prospects of the conclusion of an arbitration agreement at that stage are always low, and likely to be practically nil where a class action could be envisaged, such as in relation to mass torts relating to environmental liability or product liability. Class arbitration may be problematic also in another area in relation to which there is considerable interest in favoring class actions, i.e. private antitrust actions.12 In some cases the ultimate victims of the anticompetitive behavior will have no direct contractual link with the tortfeasor (particularly in cases of abuse of dominant position), and there will therefore be no arbitration agreement. However, there may be problems even where an arbitration agreement exists, as might be the case in the contracts between a cartelist and its clients. For instance, even though it is acknowledged that arbitration agreements must be interpreted broadly, including to cover non-contractual liability arising in connection with the relationship to which the agreement relates, in practice there may be discussions as to whether in concrete cases the causes of action will fall under the agreement. The more serious complications may arise where, as is frequent, the overall damage (e.g. the cartel surcharge) is the result of a large number of transactions, such as multiple purchases possibly over a long period of time and under different contracts and where the arbitration clauses may also be different. Differences between arbitration clauses may be a problem even in actions involving only two parties and they may become an even more significant hurdle to the consolidation of proceedings involving 11

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See for instance the ECJ’s decisions in Mostaza Claro v Centro Movil Milenium SL, Case C-168 / 05, 26 October 26, 2006; Asturcom (Case C-40 / 08), October 6, 2009; Pannon GSM Zrt. v Erzsébet Sustikné Győrfi (Case C-243 / 08), June 4, 2009; G. Born, International Commercial Arbitration, Kluwer, 2009, p. 824 ff. For such a case in the United States see Martha Kristian v. Comcast Corp., 446 F.3d 25 (1st Cir. 2006).

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multiple parties. A further complication arises where the victims of the cartel want to sue all the cartelists and the latter want to bring contribution claims against each other. There will be no arbitration agreement between the cartelists and there is unlikely to be an agreement between the victims and all the cartelists. Therefore, quite apart from the specific issues relating to class action, the feasibility of class arbitration proceedings in antitrust damage cases or similar cases may be seriously jeopardized at the start by traditional arbitration law problems relating to the subjective and personal scope of the arbitration agreement. Recourse to class arbitration in other types of cases, such as relations with insurers and financial institutions, shareholders and the issuers of financial instruments (bonds etc) is likely to encounter the same problems, leaving aside the fact that arbitration clauses are extremely rare in such types of relationships.

4. The main issues posed by class arbitration As shown in the preceding sections, class arbitration poses problems already in relation to the two essential prerequisites of arbitration, arbitrability and the existence of a valid arbitration agreement. The requirement of arbitrability is likely to make class arbitration difficult in Europe for many disputes for which it is resorted to in the US, and which may be precisely the ones for which class arbitration may be most appealing for the defendants. As to the arbitration agreement, it may be problematic to find the existence of a valid agreement binding on all the members of the class of would-be plaintiffs and on the defendant(s). Even beyond this, there are numerous other problems.

a) Is the notion of a class action compatible with that of arbitration? Class arbitration raises a first concern which is almost philosophical: is class arbitration permissible or even at all conceivable? It is in fact sometimes said that the notions of class actions and of arbitration are fundamentally incompatible. This would be the case for a number of reasons. For example, a class proceeding is intrinsically incompatible with the notion of confidentiality, often cited as a fundamental tenet of arbitration. This, however, is not a viable criticism. While arbitration is often resorted to in the belief that it ensures confidentiality, it is by now widely acknowledged that the confidentiality of arbitration does not rest on solid legal bases 214

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and in any case suffers significant exceptions.13 Investment arbitration is an obvious case in point. Another area of conflict between the two notions might be seen to lie in the fact that class actions involve some “public interest” aspect lacking in arbitration, which is a purely private proceeding. Even that is not a fundamental obstacle. After all, there is no discussion that arbitration can be resorted to also in relation to disputes with important underlying public law and policy issues, antitrust of course being one of them. There is thus no reason to hold that by its nature arbitration would be incapable of handling any “public” type of concern intrinsic to class actions. These concerns could be addressed by appropriate safeguards, including at the review stage of the award, as happens with ordinary arbitrations involving mandatory rules.14 Due process and efficiency are likewise sometimes cited in this context, on the assumption that neither can be guaranteed by arbitration. Whilst these are obviously important concerns, they are not sufficient to exclude the possibility of class arbitration altogether. Both due process and efficiency can indeed be duly catered for by appropriate rules and case-management techniques. Even where the relevant arbitration agreements, arbitration rules and applicable law do not contain rules on mass proceedings, the powers to deal with such issues are to be considered as falling within the so called inherent powers of arbitrators. The conclusion is therefore that there is nothing intrinsic in the concept of arbitration that makes class proceedings per se impossible or inconceivable. Class arbitration should therefore be possible provided that it is compatible with the relevant arbitration agreement and with the applicable rules, and obviously subject to the necessary adaptations of the general principles of arbitration to the peculiarities of this type of action. These adaptations should not be impossible to devise. After all, arbitration has proved to be a very flexible instrument which can be adapted to new situations and challenges. Multiparty arbitration is just one of them, to mention a case which is germane to class arbitration. The real issue is whether class arbitration is possible in practice.

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See International Law Association, Committee on International Commercial Arbitration (L.G. Radicati di Brozolo and M.W. Friedman rapporteurs), Report and Recommendations on “Confidentiality in International Arbitration”, available at http: // www.ila-hq.org / en / committees / index.cfm / cid / 19. See L.G. Radicati di Brozolo, Arbitration and Mandatory Rules, Am. Rev. of Int’l Arb., 2012, p. 49 ff.

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b) Consent to class arbitration It is trite that arbitration is based on consent and that there can be no arbitration without the consent of all the parties. In relation to class arbitration this issue has a double layer of complexity. The preliminary question of the existence of arbitration agreements that permit recourse to arbitration in general has been touched upon in Section 3. above. There is, however, a second aspect, which is that of consent not only to arbitration in general, but specifically to class arbitration. From this point of view no special difficulty should arise where the possibility of a class action is explicitly provided for by an arbitration agreement that is binding on all concerned, and specifically on all the members of the would be-class. Difficulties arise, instead, where, as is likely to be the rule, the agreement is completely silent on the issue of class action or where it contains an explicit exclusion of such type of proceedings. If the arbitration agreement is silent, one approach would be to consider that class proceedings are ruled out altogether. Such a conclusion could only be reached on the assumption that class arbitration is something that must be agreed to expressly by all concerned, and that cannot be inferred from a normal agreement to arbitrate. However, there is no overriding consideration capable of justifying such an absolute conclusion, and a more nuanced approached would seem to be in order. The question may thus have to be addressed more simply as a matter of interpretation. The main point will be whether the parties’ failure specifically to mention class arbitration is to be construed as excluding such type of proceeding or, on the other hand, whether silence can be taken as an indication that such proceedings are not excluded and therefore possible. The solution will normally turn largely on the specifics of the case at hand. These will include, for instance, whether any applicable arbitration rules provide for such proceedings, as some indeed do,15 or at least whether such an arbitration is compatible with the applicable rules; the background of the case; the reasonable expectations of the parties; whether a class action would be possible in a corresponding situation before a court and on whether resort to arbitration can be viewed as a way of circumventing recourse to class proceedings. It is likely that in many cases there will be a temptation to rely on presumptions, even though these could vary considerably depending on the perspective from which the matter is approached. The perspective of the members of the class and of the other party may differ significantly, and it is not even necessarily clear which side will be more favorable to arbitration.

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Closely linked to this point is that of who, between the courts and the arbitrators, has jurisdiction to interpret the arbitration agreement. Like many others of the ones mentioned in this article, this is a point that has been debated in the US, where the answer seems to be that this matter falls under the jurisdiction of the arbitrators. This solution makes sense in light of the principle of arbitral Kompetenz-Kompetenz, which is one of the cornerstones of arbitration law.16

c) The waiver of class arbitration Clearly related to the problem of consent is whether class arbitration can be explicitly excluded. The point is very problematic in the United States, largely because in the United States arbitration clauses are often used precisely to circumvent the possibility of class actions, such as in relations with consumers or employees.17 As discussed above, this should not be an issue in Europe because arbitration is not possible at all in that type of case. This raises the broader problem whether the right to class action, where it exists, is waivable, including by means of forum selection clauses designating a forum where such actions are not contemplated or arbitration clauses. As a general consideration, it would seem that, if the availability of class actions is intended to be a means to permit the bringing of actions by parties otherwise unlikely to be in a position to bring individual suits, the waiver of such a right, including by means of a choice of forum or by an agreement to arbitrate, should be allowed only subject to sufficient safeguards. Of course, in Europe the seriousness of this problem is somewhat tempered by the fact that arbitration itself is not permitted in relations with weaker parties. If a waiver of class action is considered impermissible where class actions are permitted, there are essentially two options in the presence of an arbitration agreement containing such a waiver. The first is to consider that the arbitration agreement remains valid, despite the invalidity of the waiver of class action. In that case the arbitration should be allowed to proceed as a class arbitration, assuming that such an action is otherwise compatible with the agreement and possible in the circumstances. Alternatively, if the waiver of class action is considered an intrinsic element of the agreement to arbitrate, the agreement itself should lose effect and proceedings should be allowed to proceed before the courts. The same would apply where, despite 16

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On the principle of Kompetenz-Kompetenz in arbitration see J.-F. Poudret and S. Besson, Comparative international arbitration, 2nd ed, Sweet&Maxwell, 2007, pp. 387 ff.; G. Born, International Commercial Arbitration, supra note 11, p. 851 ff. See B. Hanotiau, supra note 6.

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the lack of an express waiver of class arbitration, the interpretation of the arbitration agreement indicates an absence of consent to class arbitration.

d) Other problems There are countless other problems that arise in connection with class arbitration and for which there is no obvious solution. Amongst these one can mention those relating to the certification of the class, and to whether this is a matter for the courts or for the arbitrators. Another very significant problem relates to the choice of the arbitrators. The presence of a large number of parties on one side may make it impossible for all of them to agree on the choice of the arbitrator, which might in turn lead to an imbalance if the other party is only one. In this case one might resort to the mechanisms for the designation of the tribunal that apply to multiparty arbitrations,18 but that too may require some adaptations, and in any case special rules. Another obvious set of problems relates to the effects of the award and its binding character for parties who did not directly take part in the arbitration. Extrapolating the principles applicable to class actions in courts may not be self-evident, especially where there is no clear agreement or statutory basis to that effect.

e) The specific issues of international arbitration All the issues outlined above become even more complex when the dispute acquires an international element, as is very likely often to be the case in Europe, were it only because frequently the class will be composed of parties from different member States. All the complex conflict of laws and conflicts of jurisdictions problems that are an everyday feature of international arbitration obviously arise also in connection with class arbitration, and they do so in a magnified fashion intertwined with the already complex problems raised by class litigation in national courts. The quest for the applicable law becomes an issue in relation to each one of the problems outlined above, as does the one for the court having jurisdiction to rule on the different disputes that may arise in connection with the arbitration. It is clearly not possible at this juncture to address these issues in detail. It is not unlikely, however, that there will be considerable uncertainties as to 18

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See for example Article 12.6 of the ICC Rules and Article 816-quater of the Italian Code of Civil Procedure and generally G. Born, supra note 11, p. 2073 ff.

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which law should be applied to the different issues, and that in some cases different States might assess the matters differently. For example, issues of arbitrability may be assessed differently from one State to another, as well as the basic issue of the possibility to resort to class arbitration and the effects that this would have on possible concurrent proceedings before the courts of different States. There is a distinct chance, in particular, that the law of the seat of the arbitration may have a lesser role than it usually does in matters of arbitration, especially if the law of the seat adopts a significantly different, broader or more restrictive, approach to the availability of class actions and to the requirements and effects of arbitration agreements in relation to such actions. These differences of approach may acquire relevance also at stage of the review of the award, be it in challenge proceedings or at the enforcement stage. At least until there is a fairly uniform approach to class actions in general, and specifically to the relations between class actions and arbitration, the temptation of courts to resort to the traditional tool of public policy may be fairly strong in this area.

5. Conclusions It is very difficult to draw any meaningful conclusions on this subject, except for the very general one that the relations between arbitration and class actions are problematic and that they are bound to be particularly so in Europe where the environment is still fairly distrustful of class actions in general. It is therefore unlikely that in the short term Europe will see waves of class action arbitrations. This may not necessarily be a cause for significant concern. Much as arbitration is a fundamental tool for the settlement of disputes in the business world, it is questionable that it is a particularly efficient system when it comes to class actions, or in any case that it has obvious advantages over traditional court litigation. One aspect that deserves to be explored is who – the class or the opposite party, usually the defendant – stands to benefit from recourse to arbitration rather than to the courts and whether this type of arbitration in some way dilutes the advantages or the attractions of a class action for the members of the class. A case has recently been made for the advantages of recourse to arbitration in relation to mass “regulatory litigation”, showing that arbitration can provide a solution to many of the problems that characterize such litigation

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in the transnational arena.19 Nevertheless, the advantages of arbitration over court litigation may not be equally strong in Europe, where class litigation in the courts will probably be immune from some of the peculiarities which make class litigation in the United States a subject of great concern for its possible targets and may induce the parties to go to great lengths to avoid it, including recourse to arbitration. Furthermore, the likely divergence of interests between all the parties that is typical in most litigations of this type and the fact that in many cases the agreement to arbitrate can only be entered into after the occurrence of the event, will often considerably reduce the prospects of reaching the necessary agreement to class arbitration, no matter how appealing such a dispute settlement mechanism may appear to be from an abstract or a policy standpoint. This said, there certainly are areas where some form of class arbitration may be easier to implement. One of these could be shareholder disputes. In any event, it is clear that an indispensable precondition for class arbitration to become a serious prospect in Europe is the development of wellconsidered rules which specifically address the peculiarities of class arbitration. This is a task for the drafters of arbitration agreements, but especially for arbitral institutions, which could try to leverage on such rules to reach out to a potential new market. Some institutions have already embarked on this route, predictably in the United States.20 This could also be an area to which legislators might give some consideration. If the European Union and member States will at one point become serious about introducing class actions on this side of the Atlantic, they should probably also give some thought to the interrelations between such actions and arbitration.21 However, before embarking in such a legislative exercise, very considerable attention should be given to this topic which is still in its infancy. It is much too early to tell whether the future holds much in store for it.

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See S.I. Strong, Enforcing Class Arbitration, supra note 6 and S.I. Strong, Mass Procedures in Abaclat v. Argentine Republic, supra note 9. See the AAA Supplementary Rules for Class Arbitrations and the JAMS Class Action Procedures and, in Europe, the Supplementary Rules for Corporate Law Disputes of the DIS analyzed in S.I Strong, Collective Arbitration under the DIS Supplementary Rules for Corporate Law Disputes: A European Form of Class Arbitration?, ASA Bulletin, 2011, p. 45. This obviously means that a less perfunctory analysis than the one contained in the Commission’s paper (see note 1 above) is required.

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Private International Law and Collective Redress – The case of Antitrust damage claims Michael Hellner 1. Private Antitrust Damages Claims For the past two decades or so the Commission has been trying to shift the burden of enforcement of EU antitrust law from itself to the victims of anticompetitive behaviour – so called private enforcement of antitrust law.1 The Court of Justice had early on in BRT v. Sabam ruled that the provisions in Articles 85 and 86 EC (now 101 and 102 TFEU) had direct effect,2 but the problem remained that the Commission had the sole power under Article 9 of (then) Regulation 173 to grant exemptions from the provisions, thus rendering any application of EU antitrust law by a national court rather incomplete. What is more, the law of damages for antitrust law violations was (is) underdeveloped in many Member States and it was for a long time uncertain whether EU law itself granted a right to claim damages for violations of its antitrust law or whether such a right was dependent on the position of national law. During the previous decade two important steps were taken towards private enforcement of EU antitrust law. Firstly, national courts were given the power to apply Article 81 (3) EC (now 101 [3] TFEU)4 and rule that a certain conduct that as such infringed the antitrust rules qualified for an 1

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See Notice on cooperation between national courts and the Commission in applying Articles 85 and 86 of the EEC Treaty, OJ C 39, 13.2.93, p. 6. Case 127 / 73 BRT v. Sabam [1974] ECR 51, para. 16. Council Regulation No 17 of 6 February 1962: First Regulation implementing Articles 85 and 86 of the Treaty, OJ No 13, 21.2.1962, p. 204 / 62 (English Special Edition 1959-62, p. 87). The rules were in the original EEC Treaty Articles 85 and 86. The name of the EEC Treaty was changed to the EC Treaty through the Maastricht Treaty, effective as of 1 November 1993. The two articles were renumbered to 81 and 82 through the Amsterdam Treaty, effective as of 1 May 1999. After the restructuring of the treaties through the Lisbon Treaty the rules are now found as Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU), effective as of 1 December 2009. The wording has never been changed.

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exemption.5 Secondly, the Court of Justice, made it clear in the Courage and Manfredi judgments that a violation of Article 101 or 102 TFEU gives a right to civil law damages, contractual or non-contractual, to the victim of the antitrust infringement.6 With those two pieces of the puzzle in place two major obstacles to private enforcement of antitrust law had been removed. Even so, the Commission observed that due to a number of legal and procedural obstacles many victims of antitrust infringements remain uncompensated. One (of many) identified problems is that the position of indirect purchasers is weak – i.e. purchasers who have themselves not directly dealt with the antitrust infringer but who will have suffered (often small) individual harm because an originally illegal overcharge was passed on to them via the direct purchaser and possibly more links in the distribution chain. Their damage is often too small or even difficult to identify in order to motivate litigation, but may nonetheless be legally complex and difficult to prove. Even victims that have had a direct contact with the infringer(s) will often refrain from bringing an action due to high cost7 and complexity involved in litigation.8 Since the three main factors generally held to motivate the possibility of bringing class actions are (1) high litigation costs, (2) unawareness of rights, and (3) damage that is scattered, small or even difficult to identify – antitrust damages litigation would appear to be a good candidate for such actions.9 In the White Paper, the Commission suggests two kinds of complementary mechanisms of ‘collective redress’ – namely representative actions 5

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Article 6 Council Regulation (EC) No 1 / 2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty, OJ L 1, 4.1.2003, p. 1. See also recital 7. For background reasoning see i.a. COM(2008) 165 final, White Paper on Damages actions for breach of the EC antitrust rules, p. 19 f. Case C-453 / 99 Courage and Crehan [2001] ECR I-6297 and joined cases C-295−298 / 04 Manfredi [2006] ECR I-6619. The Court had previously in case C-128 / 92 Banks [1994] ECR I-1209 denied national courts the right to award damages for a breach of the antitrust rules in the ECSC Treaty without a prior Commission decision establishing the infringement, thus causing great confusion as to the position under the EC Treaty. Here, the existence of contingency fees and a rule requiring each party to bear his own costs regardless of the outcome of litigation would serve to lower this barrier. The Commission also encourages Member States to reconsider their cost allocation rules, see COM(2008) 165 final, p. 9 f. See COM(2008) 165 final, p. 4. See P.H. Lindblom, Grupptalan i Sverige, Norstedts Juridik (2008), p. 38 ff. for obstacles to justice motivating the introduction of class action systems.

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brought by entities such as consumer associations or state bodies, and optin class actions in which victims pool together to combine individual claims into one joint action. However, the terminology is far from settled. So called ‘collective actions’ have also been used as a comprehensive term that encompasses (1) joint actions, i.e. actions brought by one or several plaintiffs against one or several defendants as traditional two-party actions that are joined because of a close connexion between the actions;10 (2) pilot cases, one case is brought forward by an individual plaintiff but there are a number plaintiffs with similar claims that hope to settle based on the result of the pilot case; (3) actions brought by associations, and (4) group actions.11 This contribution focuses on the particular private international law problems that such actions would cause.

2. Jurisdiction – the Brussels I Regulation If the defendant is domiciled in a Member State of the European Union the so-called Brussels I Regulation will apply to questions of jurisdiction, see Article 3.12 If the defendant is domiciled outside the European Union national rules of jurisdiction apply, but it would fall outside the scope of this contribution to analyse 28 different legal systems.13 The options that a claimant suing for compensation has depends firstly on the basis for his action. Since in many cases there will be a contractual link between the antitrust infringer and the victim, there would, depending on the applicable law, be a possibility to sue either in contract or in tort. The choice of which would be dependant on factors such as limitation periods and the necessity to prove fault when bringing an action in tort. Since the application of 10 11

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Cf. Article 6(1) Brussels I Regulation. A. Stadler, “Collective Action as an Efficient Means for the Enforcement of European Competition Law”, in: J. Basedow (ed.), Private Enforcement of EC Competition Law, Kluwer Law International (2007), pp. 195-213. The terminology is far from settled and e.g. the Ashurst Study speaks of (1) public interest litigation, (2) class actions, (3) collective claims, (4) representative actions, (5) joint actions, and (6) assigned claims. See D. Waelbroeck, D. Slater & G. Even-Shoshan, Ashurst Study on the Conditions of Claims for Damages in Case of Infringement of EC Competition Rules, (2004), p. 42. Council Regulation (EC) No 44 / 2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, OJ L 12, 16.1.2001, s. 1. There are 27 Member States, Croatia not withstanding, but in this matter Scots law is separate from that of England and Wales.

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Articles 101 and 102 TFEU is not dependent on fault or intent there may be none, particularly in the case of abuses of a dominant position where the infringing firm might be acting in good faith (however, this may influence the issue of fines).14 In the absence of fault one may even imagine an action brought under unjust enrichment. Since there is no evidence of any real action under unjust enrichment we will only focus on actions in contract in tort. This leaves us with five main jurisdictional headings: (1) the court chosen by the parties, Article 23; (2), defendant’s domicile, Article 2 (2) (3) for actions in contract, Article 5 (1), place of performance; and (4) for actions in tort, Article 5(3), place of harmful event.15 In addition to this, in the case where there are several defendants, we have Article 6(1), which creates a possibility to sue all antitrust infringers at the domicile of one of them.

a) Choice of Court Agreements – Article 23 If the action is brought by direct purchasers, there will be a contractual link between the victims and one or more of the infringers. The contracts between the infringers and victims will often contain a choice of court clause.16 If such a clause is held to cover also actions brought in tort for competition law damages for a cartel agreement, we would have a situation in which litigation against certain cartel members is limited to the forum specified in the contract(s). In the case of a joint or group action against several members of a cartel, the plaintiffs will be bringing an action in tort against all the members of the cartel, including those with which they have no contract. The plaintiffs would then have to divide their action between several different fora and there is a risk of conflicting judgments concerning the same jointly committed tort. Given that an action against several members of a cartel would be one action against them all as an entity and that they would be held jointly and severably liable for the damage, it is submitted that such an ineffective enforcement of the right to compensation for damages caused due to an infringement of Article 101 TFEU would run contrary to the requirement 14

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See Opinion of AG Kokott delivered on 28 February 2013 in case C-681 / 11, Schenker, [2013] ECR I-0000. For reasons of space we will leave out consumer contract actions, for which Article 16 provides a forum at the consumer’s domicile. Such contracts will of course also often refer to arbitration, a situation that in part gives rise to similar problems, in part to other problems. However, arbitration falls outside the scope of this paper.

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of effective redress mechanisms in EU competition law.17 What is more, it could even be argued that it would run contrary to the general principle of effective judicial protection in EU law, as expressed in Article 47 of the Charter of Fundamental Rights of the European Union.18 In Otis the Court of Justice has clearly expressed that the right of access to a court means that this court must in order ‘to be able to determine a dispute concerning rights and obligations arising under EU law in accordance with Article 47 of the Charter, […] have power to consider all the questions of fact and law that are relevant to the case before it’.19 Such would not be the case if the case were cut up into several parallel proceedings. The court(s) designated in the prorogation agreement(s) should therefore dismiss the case in favour of the court in which a consolidated action against all cartel members can be brought. This can either be achieved through giving primary EU law – the principle of effective judicial protection and / or Article 47 of the Charter. Another way to come to the same end is through interpretation of Article 23 of the Brussels I Regulation. Article 23(1) requires that the agreement of the parties concern ‘a particular legal relationship’.20 The purpose of that requirement is to avoid a party being taken by surprise by the assignment of jurisdiction.21 In a situation such as this, the fact that one party has entered into a cartel agreement with other companies will surely come as a surprise to the victim and an action in tort for compensation suffered from the cartel cannot be held to be included in the prorogation agreement.22 If the action is against one company that has abused its dominant position and charged excessive prices, the situation might be different. If we assume that there are several victims of this abuse that all have entered into contracts with the tortfeasor and that all contracts prorogate jurisdiction to 17

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Case C453 / 99 Courage and Crehan [2001] ECR I6297, para. 26; joined cases C295 / 04 to C298 / 04 Manfredi [2006] ECR I-6619, para. 60; case C-199 / 11 Otis [2012] ECR I-0000 (decided 6.11.2012, not yet reported), para. 41. See cases C279 / 09 DEB [2010] ECR I13849, paras. 30 and 31; C457 / 09 Chartry [2011] ECR I0000, para. 25; and C69 / 10 Samba Diouf [2011] ECR I0000 (decided 29.7.2011, not yet reported), para. 49. Case C-199 / 11 Otis [2012] ECR I-0000 (decided 6.11.2012, not yet reported), para. 49. French: ’un rapport de droit déterminé’; German: ’ein bestimmtes Rechtsverhältnis’. Case C-214 / 89 Powell Duff ryn [1992] ECR I-1745, para. 31. Such was held to be the case for jurisdiction clauses governed by Swiss, German and French law in Provimi Ltd v Aventis Animal Nutrition SA [2003] EWHC 961, [2003] ELR 517.

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defendant’s domicile, upholding such a clause would not either the violate the requirement of effective redress mechanisms in EU competition law or the principle of effective judicial protection. Whether a prorogation clause actually covers such an action in tort is a whole other story.23 However, as soon as we have a group of plaintiffs that includes indirect purchasers that do not have a direct contractual link with the abusing company, we have problems of effectiveness of the action. However, one important difference between this situation and the cartel situation is that in most cases the clauses will all point to the same direction – presumedly (but not necessarily) the defendant’s domicile. That forum is also available to indirect purchasers whishing to bring an action against the dominant company (for the problems of a limitation to defendant’s domicile in collective redress, see below).

b) Defendant’s domicile – Article 2 Article 2 is the basic jurisdictional rule of the Regulation, which will always be available in an antitrust infringement case irrespective of the legal basis. There are two main problems connected with collective redress in the defendant’s domicile (we will have to assume that at least some of the victims are domiciled in another country, otherwise the case would not be international). First of all, defendant’s domicile might not be were the foreign plaintiffs want to bring an action. This will be fighting an away game and takes away one of the incentives of collective redress, viz. reducing barriers to justice. What is more, if the class is mixed and consists of both domestic and foreign victims, the foreign victims will add further complexity and costs to the case and might be treated unfavourably and even be thrown out of the action.24 Secondly, if the action is a representative action, the representing body, which could be a government body, a consumer organisation or a trade association might not be empowered to act on behalf of plaintiffs domiciled

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See Rauscher / Mankowski, EuZPR / EuIPR (2011) Art. 23 Brüssel I-VO, para. 62a. In Swedish Supreme Court case NJA 2008 p. 120 (BornholmsTrafi kken) an arbitration clause in an investment contract was held to include a non-contractual action against a harbour that allegedly had abused its dominant position. M. Danov, “The Brussels I Regulation: Cross-Border Collective Redress Proceedings and Judgments”, (2010) 6 Journal of Private International Law pp. 359-393, at p. 365.

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outside its territory.25 And even if they are, they might for reasons of costs and complexity have very little interest in doing so.

c) Actions in contract – Article 5(1) Subject to the existence of a valid choice of court clause between the parties (Article 23), an action in contract may according to Article 5(1) be brought at the place of performance of the obligation in question. The place of performance is situated where the parties, regardless of form, have agreed that it is and will determine jurisdiction for the purposes of Article 5(1).26 If the parties have not specifically agreed on a place of performance that place will be at either (a) if the contract is for the sale of goods, where the goods were delivered or should have been delivered, or (b) If the contract is for the sale of services, where the services were provided or should have been provided. If the contract neither is for the sale of goods nor for the provision of services – such as e.g. a licensing agreement27 – things get (a lot) more complicated. This is not the right time and place to describe the case law of the Court of Justice on the interpretation of Article 5(1) but suffice it to say that we will need firstly to identify the relevant obligation28 and secondly to make a choice of law according to the private international law of the forum to identify the place of performance of this obligation.29 We can imagine a case of a number of distributors that bring a collective action for declaratory relief from similar distribution agreements with the same (big) company. The companies believe that certain provisions of the contract violate Article 101 TFEU and want to get out of it. The case is similar to that in Courage,30 which concerned a beer distribution agreement, 25

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However, it could be argued that this would be an indirect discrimination on grounds of nationality and as such in violation of EU law, cf. D.-P. Tzakas, “International Litigation and Competition Law: The Case of Collective Redress”, in: J. Basedow, S. Francq & L. Idot (eds.), International Antitrust Litigation: Conflict of Laws and Coordination, Hart Publishing, 2012, pp. 161-189 at 182. Case 56 / 79 Zelger I [1980] ECR 89. The CJUE held in case 533 / 07 Falco Privatstiftung [2009] ECR I-3327 that a licensing agreement is not an agreement for the provision of services for the purposes of Article 5(1). It is obviously not an agreement for the sale of goods. For this see primarily cases 14 / 76 de Bloos [1976] ECR 1497; 266 / 85 Shenavai [1987] ECR 239 and C-420 / 97 Leathertex [1999] ECR I-6747. See cases 12 / 76 Tessili [1976] ECR 1473 and C-533 / 07 Falco Privatstiftung [2009] ECR I-3327. Supra note 6.

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with the difference that our case involves several distributors located in different countries bringing the same action. Given that such contracts are often standardized such an action could very well be imagined. It is quite likely that the only country in which all of the distributors could bring such an action is at the domicile of their counterpart. If the place of performance of the defendant is anywhere else than at his domicile,31 there will most likely be different places of performance vis-à-vis the different distributors. The only place to consolidate the claim will then be at the domicile of the defendant – either based on Article 2 or on Article 5(1). Had there been one single distributor that were responsible for distribution in several countries, this distributor could have argued for the application of the principle laid down in Wood Floor Solutions.32 The case concerned agency and the Court of Justice held that if services33 are provided in several countries the court of the place where the main provision of services is situated has jurisdiction to decide all claims, including those arising out of agency in other countries. One could – de sententia ferenda – argue that this principle should be carried on to similar or identical agreements with different parties. Hence, the collective action should be able to be brought in the country in which the main part of the distribution took place also concerning distribution agreements covering other countries.

d) Actions in tort – Article 5(3) According to Article 5(3) an action in ‘tort, delict or quasi-delict’ may be brought in the courts for the place where the harmful event occurred or may 31

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If a distribution contract is held to be a contract for the sale of goods or for the provision of services it becomes more likely that the place of performance is at the place of the distributor than if we have to rely on the Tessili line of case law. Contra distribution contracts being contracts for the sale of goods and also contra their being contracts for the provision of services if the distributor acquires title to the goods: P. Mankowski, “Article 5”, in: U. Magnus & P. Mankowski (eds.), Brussels I Regulation, 2nd. ed., Sellier European Law Publishers, 2012, pp. 147 and 157 (paras. 74 and 92). Case C-19 / 09 Wood Floor Solutions [2010] ECR I-2121. The point of departure of the referring court was that an agency contract is a contract for the provision of services and the CJUE was never asked to rule on this, perhaps because it is self-evident. It would have been within the powers of the Court to give an answer to this question if it had felt it necessary but it didn’t. Thus we can now safely assume that an agency contract is a contract for the provision of services.

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occur. In one of the first judgments of the Court of Justice on the Brussels Convention – the Bier case – the Court ruled that when the place of the acting and the place of the damage occur in different countries there is jurisdiction in both.34 This is, in particular by German speaking commentators, referred to as the principle of ubiquity. Since the damage will often occur at the domicile of the plaintiff, possibility to sue at the place of the damage amounts to a virtual forum actoris. Suing at the place of damage offers a considerable advantage to the plaintiff and, perhaps in order to achieve a more level playing field,35 the Court of Justice has in Shevill made it clear such jurisdiction only covers the injury suffered by the victim in that country.36 Technically speaking, the Court only ruled on jurisdiction for libel by a newspaper but the principle has been held to be generally applicable also to other torts.37 This principle, known as the mosaic principle, was recently upheld in eDate & Martinez, which concerned libel on the Internet.38 However, in that case the Court introduced a third place of jurisdiction, viz. the place where the victim has his centre of interests. The courts of that country, normally the place of habitual residence of the victim, has jurisdiction in respect of all the damage caused. This rule was limited to libel on the Internet and was in Wintersteiger not expanded to actions for the infringement of a trade mark.39 This author’s conclusion is that while the Court is probably unwilling to generally expand jurisdiction at the centre of interest of the victim to other areas than libel on the Internet, it has also not quite closed the door to doing so in particular cases such as perhaps collective redress against antitrust infringements. In an antitrust infringement case there is some uncertainty as to where the acting takes place. If we take a cartel as an example it could be argued that the cartelists were acting at (a) the place of agreement (if there is one such place), (b) the place of implementation of the cartel agreement (which would in always all cases coincide with the place of effect), and (c) the seat

34 35 36 37

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Case 21 / 76 Bier [1976] ECR 1735. See P. Mankowski, supra note 31, p. 241 (para 208). Case C-68 / 93 Shevill [1995] ECR I-415. S. Leible, “Artikel 5 Brüssel I-VO”, in: T. Rauscher & A. Staudinger (eds.), Europäisches Zivilprozess- und Kollisionsrecht: Bearbeitung 2011 Brüssel I-VO & LugÜbk 2007, p. 279 (para 92); P. Mankowski, supra note 31, p. 241 (para 208); L. Pålsson & M. Hellner, Bryssel I-förordningen jämte Bryssel- och Luganokonventionerna (Zeteo, 31.12.2011), para. 62. Cases C-509 / 09 & C-161 / 10 eDate & Martinez [2011] ECR I-0000. Case C-523 / 10 Wintersteiger [2012] ECR I-0000.

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of the cartelist (which would coincide with defendant’s domicile).40 Since in both Shevill41 and Wintersteiger42 the Court was ready to accept the seats of the tortfeasors as the place of acting without discussion this could indicate that the Court would be willing to equal the place of acting with the seat of the cartelist. The only interpretation that would add a forum that is not already available is that of the place of agreement. However, in this author’s opinion the place of agreement can be entirely fortuitous (a meeting room at a conveniently located airport or a holiday resort) and will from a procedural point of view be relatively uninteresting. The only evidence located at the place of agreement would be witnesses to the fact that the cartelists met and actually had a meeting. In terms of the location of evidence relevant to proving tortious behaviour and damage the respective seats of the cartelists and the places of implementation of the cartel agreement are much more relevant. Admittedly, the agreement itself constitutes an infringement of Article 101 TFEU. There is no requirement that the agreement has actually had a negative impact on competition, it is sufficient that it potentially does so.43 However, the agreement itself does not give rise to a right to damages since it has not yet produced any damaging effects. To be true, as Jürgen Basedow points out, Article 5(3) also covers actions for preventative injunctive relief. He draws the conclusion that at such an early stage ‘the planned location of the meeting in fact constitutes the only possible connecting factor within the framework of Article 5(3)’.44 However, cartels are by their very nature, and due to the fact that they are in many countries also criminally sanctioned, highly secret. Therefore, the number of cases in which the time and place of a meeting with the intention of entering into a cartel agreement are known to a potential victim of the cartel in advance, so that he could bring an action to prevent it, must be miniscule. If we add to this the class action perspective, where you would have to define and create a class before bringing the action, well, this simply does not happen.45

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41 42 43 44 45

See J. Basedow, “International Cartels and the Place of Acting under Article 5(3) of the Brussels I Regulation”, in: J. Basedow, S. Francq & L. Idot (eds.), International Antitrust Litigation: Conflict of Laws and Coordination, Hart Publishing, 2012, pp. 31-39 at p. 33 ff. with further reference to adherents of the different places. Supra note 36. Supra note 39. Case 56 / 65 Société Technique Minière v. Maschinenbau Ulm [1966] ECR 235. See Basedow, supra note 40, p. 34. Admittedly, a representative action in which e.g. a trade or consumer organisation were to bring an action could be as quick as an individual action.

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Turning to the place of damage, there is the problem of localising nonphysical damage such as antitrust damage. It is common understanding that the relevant damage is not the damage to the assets of the victim46 but to the competition as such. For the purposes of applicable law this has been clarified in Article 6(3) of the Rome II Regulation,47 according to which the law applicable to antitrust infringement damages ‘shall be the law of the country where the market is, or is likely to be, affected’. According to recital 21 this is not an exception to the general rule of application of the law of the country in which the damage occurs but rather a clarification of what this means in the context of antitrust. Although one could theoretically argue there are reasons for a divergence in interpretation, in this author’s opinion doing so makes little sense and would at any rate probably be too academic for anyone to understand. An identical interpretation would also have the advantage of leading to the application of the law of the forum when the action is brought at the place of damage. For the same reasons of procedural economy and simplicity, it is submitted that the place where the damage occurred / the affected market be tied to the concept of a geographic market that is used in substantive EU antitrust law.48 There, the concepts of a geographic market and a product market are used when determining whether there is a dominant position under Article 102 TFEU and also for determining dominance under the Merger Regulation49 – no company is dominant on the market for all the products in all the world! Markets may additionally need to be defined when applying Article 46 47

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See case C-168 / 02 Kronhofer [2004] ECR I-6009. Regulation (EC) No 864 / 2007 of the European Parliament and of the Council of 11 July 2007 on the law applicable to non-contractual obligations (Rome II), OJ L 199, 31.7.2007, p. 40. Most authors agree on this in the area of applicable law, see i.a. M. Hellner, “Unfair Competition and Acts Restricting Free Competition: A Commentary on Article 6 of the Rome II Regulation”, (2007) 9 Yearbook of Private International Law 60; A. Dickinson, The Rome II Regulation, Oxford University Press, 2008, p. 419 f. (para. 6.62 f.); R. Plender & M. Wilderspin, The European Private International Law of Obligations, 3rd ed., Sweet & Maxwell, 2009, p. 620 (para. 20-056); M. Illmer, “Art. 6”, in: P. Huber (ed.), The Rome II Regulation: A Pocket Commentary, Sellier European Law Publishers, 2011, p. 189 (para. 92). Agreeing as to jurisdiction: B. Vilà Costa, “How to Apply Articles 5(1) and 5(3) Brussels I Regulation to Private Enforcement of Competition Law: a Coherent Approach”, in: J. Basedow, S. Francq & L. Idot (eds.), International Antitrust Litigation: Conflict of Laws and Coordination, Hart Publishing, 2012, pp. 17-29 at p. 27. Council Regulation (EC) 139 / 2004 of 20 January 2004 on the control of concentrations between undertakings (the EC Merger Regulation), OJ L 24, 29.1.2004, p. 1.

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81 EC, in particular when determining whether an appreciable restriction of competition exists or when establishing if the condition under Article 81(3) (b) for an exemption is met.50 Since many antitrust infringement actions are so called follow-on actions, i.e. an infringement decision has already been taken by the Commission or a national competition authority, there will already be a market definition and there is no need to re-invent this wheel. Turning now to collective redress, the place of damage can be quite useful as a jurisdictional heading if all the victims are located in one country. In a representative action this is often the case since the representative body is quite likely to be territorial in nature and represent victims in its own jurisdiction.51 There is of course nothing that would prevent a European consumer organisation from bringing an action on behalf of consumers having suffered damage in different countries but that is something that this author has not yet heard of. As soon as the damage occurs in several countries this ground of jurisdiction ceases to be useful to the class that wants to consolidate their claims in one jurisdiction other than that of the defendant’s domicile so long as the Court does not depart from its Shevill decision limiting jurisdiction to the damage that has occurred in the country of jurisdiction.52 Given that the Court on several occasions has indicated its great reluctance against anything that could be interpreted as general jurisdiction at the domicile of the plaintiff,53 this is, although not impossible (think eDate!) perhaps not likely.

e) Consolidation of Actions – Article 6(1) Article 6(1) provides that an action against several members of a cartel may be concentrated in a single forum at the place of domicile of one of the cartel members, provided that ‘the claims are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings’. Normally, if several victims of a cartel bring a collective action against the members of the cartel, such an action will be in tort. However, it is conceivable that one or more 50

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See Commission Notice on the defi nition of the relevant market for the purposes of Community competition law, OJ C 72, 9.12.1997, p. 13. Which!, which is a British consumer organisation that brought a representative action in the United Kingdom against JJB Sports to compensate consumers who were overcharged when they bought replica football shirts. case no. 1078 / 7 / 9 / 07, The Consumer Association (Which?) v. JJB Sports Plc. Supra note 36. Se e.g. Kronhofer, supra note 46, and case 18 / 02 DFDS Torline.

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plaintiffs also bring an action in contract, at least as an alternative cause of action. In Freeport the Court of Justice made it clear that the fact that the claims are based on different causes of action does not in itself prevent the application of Article 6(1).54 In the case of a follow-on action, the fact that not all defendants have been addressed by the same Commission decision should also not prevent a concentration of the claims against them, so long as the claims are based on the same cartel. One possible obstacle to the concentration of claims to one single forum is the requirement added by the Court of Justice in Roche Nederland that the divergence in the outcome (i.e. the risk of irreconcilable judgments) must arise in the context of the ‘same situation of law and fact’.55 In the case, which concerned European patent infringement proceedings involving a number of companies established in various Member States, the Court concluded that ‘the existence of the same situation of fact cannot be inferred, since the defendants are different and the infringements they are accused of, committed in different Contracting States, are not the same’. It would obviously be impossible to draw the conclusion from this dictum that the existence of several different defendants would prevent the application of Article 6(1), since the very existence of several defendants is a prerequisite for the application of the provision.56 However, a remaining question is what meaning should be given to the requirement of identity of infringements. It is submitted that the statement must be read in its context. The case was about the infringement of a European patent, which is a bundle of geographically limited patents, which were subject to the same conditions as national patents. Therefore, the infringement of each patent was a separate infringement. An infringement of EU antitrust law through a cartel must be seen as a single infringement even if it is carried out by different members of a cartel in different countries. However, whereas intellectual property rights are territorial in nature and infringements of them too, this is not the case with EU antitrust law. The implementation of a cartel must be seen as one and the same infringement and Article 6(1) could be used to concentrate collective actions against members of a cartel.57 54 55 56

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Case C-98 / 06 Freeport [2007] ECR I-8319. Case C-539 / 03 Roche Nederland [2006] ECR I-6535, para. 26. See M. Wilderspin, “Jurisdiction Issues: Brussels I Regulation Articles 6(1), 23, 27 and 28 in Antitrust Litigation”, in: J. Basedow, S. Francq & L. Idot (eds.), International Antitrust Litigation: Conflict of Laws and Coordination, Hart Publishing, 2012, pp. 41-59 at 49. Ibid, p. 50. Clearly, Article 6(3)(b) of the Rome II Regulation is an indication that the legislator sees things in the same way – see below.

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3. Choice of Law The two typical situations in which antitrust law will play a role in private litigation are actions in tort and in contract. In an action in tort, antitrust law will be used as a ‘sword’ and the victim of an antitrust law infringement will be seeking compensation for the damage suffered.58 In contract, it is more likely that it is the defendant that uses antitrust law as a ‘shield’, invoking nullity of the contract in order to escape certain contractual obligations. However, it is possible that also an offensive action is based in contract, at least as an alternative to tort, due to differences in limitation periods, burden of proof etc. However, the type of action that most typically will be of a collective character is an action in tort in which several victims of a cartel or an abuse of a dominant position sue for damages.

a) Tort Article 6(3) of the Rome II Regulation59 contains a particular choice of law rule for actions in tort in violation of antitrust law, or, as the article itself puts it: ‘a non-contractual obligation arising out of a restriction of competition’. This is not the time and place for a comprehensive overview of Article 6 60 but rather we will take a look at the particular rule in Article 6(3)(b), which was designed to deal with the problem of damage occurring in several countries. According to the so called mosaic principle inherent in Article 6, if the damage occurs in several countries different laws apply to different parts of the damage. In the case of an international cartel, this will almost always be the case and be a factor that complicates litigation. In Article 6(3)(b) we find a rule that allows plaintiff to base his claim on the law of the forum instead of applying multiple laws for the different parts of the damage that have arisen in various countries. In order to use this possibility, plaintiff must sue at the domicile of the defendant and the market of the forum state must also be directly and substantially affected by the antitrust law infringement. If there are several defendants, and plaintiff 58

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A declaratory judgment establishing that no infringement has taken place is of course theoretically possible. Regulation (EC) No 864 / 2007 of the European Parliament and of the Council of 11 July 2007 on the law applicable to non-contractual obligations (Rome II), OJ L 199, 31.7.2007, p. 40. This author has done so previously in M. Hellner, “Unfair Competition and Acts Restricting Free Competition: A Commentary on Article 6 of the Rome II Regulation”, (2007) 9 Yearbook of Private International Law, pp. 49-69.

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‘in accordance with the applicable rules on jurisdiction’ – typically Article 6(1) of the Brussels I Regulation – concentrates the case to one court, again the market of the forum state must be directly and substantially affected by the infringement. There are considerable advantages to this rule in cases of collective action since it enables the application of one single law to the entire action, thus alleviating the plaintiffs of the burden of pleading and proving several foreign laws. From this point of view, the rule appears to be tailored to collective action and greatly simplifies the creation of mixed classes consisting of both domestic and foreign victims. One obvious drawback is that the rule furthers forum shopping. The Member States’ laws on damages for antitrust law infringements are far from harmonized and the outcome of the case may vary considerably depending on the applicable law.61 The plaintiffs will therefore have a great interest in finding an ‘anchor defendant’ in a favourable jurisdiction and the requirement that the market of the forum must be directly and substantially affected by the antitrust law infringement is one way to mitigate this effect.

b) Contract As we have already found, collective actions in contract for antitrust law violations are rather unlikely although not impossible. Before going into a detailed discussion a preliminary remark is necessary. In tort, the question of the legality of the actions undertaken by the defendant(s) will normally be subject to the same applicable law as that of the civil law consequences since (more or less) both rely on the so called effects principle. Antitrust laws are applicable if there is an effect on the market of the legislating country and the choice of law rule in tort also presupposes an effect on a particular market. However, in contract, the effects principle is irrelevant for the determination of the law applicable. It would fall outside the scope of this contribution to go deeper into the dichotomy between the law applicable to the competition law legality or illegality as such on the one hand and the contractual remedies that are available in case of illegality.62 What we will discuss here is the latter.

61

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See for an overview E. Clark, M. Hughes & D. Wirth, Ashurst Study on the conditions of claims for damages in case of infringement of EC competition rules: Analysis of Economic Models for the Calculation of Damages (2004). Th is author goes deeper into this question in M. Hellner, Internationell konkurrensrätt, Iustus förlag, 2000, pp. 253-326 and M. Hellner, “Private International

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If we return to the case of the distributors that bring a collective action for declaratory relief from distribution agreements discussed under 2.3 we will find that the possibility to bring a concentrated action applying one and the same law will depend on a number of circumstances. If the distribution contracts contain choice of law clauses the applicable law will be determined according to what they say. This follows from Article 3(3) of the Rome I Regulation.63 Only if those choice of law clauses all point to the law of the distributor, will we have one single law governing them all. For contracts that do not contain choice of law clauses, Article 4(1)(f) stipulates that the law of the distributor’s habitual residence applies. Hence, in our imaginary collective action we would be faced with the application of different laws to the different contracts pertaining to different countries.

4. Recognition and Enforcement If a judgment involving some form of collective action emanates from one of the 27 EU Member States, it follows from Article 33 of the Brussels I Regulation that a judgment given in one Member State shall be recognised in all the other Member States. If the defendant (or defendants) are domiciled outside the EU, it follows from Article 4(1) that national rules on jurisdiction may be used. This does not change the requirement to recognise such judgments. Recognition entails giving the effects to a judgment that it has in the state in which it was once originally given.64 The only grounds upon which recognition may be refused are listed in Articles 34 and 35.65 They are: (1) public policy, (2) certain procedural flaws, (3) irreconcilable judgments, (4) violation of mandatory rules of jurisdiction. The main concern with foreign judgments based on collective actions are group or class actions based on an opt-out model, such as is the case in Portugal, Denmark and the Netherlands. These concerns led the Commission to excluding collective action from the foreseen abolition of exequatur

63

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Enforcement of Competition Law: The Application of Foreign Competition Law”, (2002) 4 Yearbook of Private International Law, pp. 357–401. Regulation (EC) No 593 / 2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I), OJ L 177, 4.7.2008, p. 6. Case C-145 / 86 Hoff mann [1988] ECR 645, para. 10. The Court upheld their exclusivity in case C-414 / 92 Solo Kleinmotoren [1992) ECR I-2237, para. 20.

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in its original proposal for a revision of the Brussels I Regulation.66 This could be seen as a violation of public policy in some Member States.67 The issue of public policy is intertwined with the protection of the defendant’s procedural rights that are given in Article 34(2). That provision ostensibly deals with the situation in which the defendant has not been properly served but could be seen as just an expression of a broader principle concerning party rights in general and be of relevance for the interpretation of the public policy exception in Article 34(1). Particularly in the case of opt-out systems, questions of the publicity of the proceedings and the methods for opting out are raised.68 Article 34(3) and (4) concern irreconcilable judgments. In such case Article 34(3) gives unconditional precedence to a judgment from the Member State in which recognition is sought. Article 34(4) addresses the situation where there is a conflict between judgments from other Member States or third countries. In such case the judgments must involve ‘the same cause of action’ and the earlier judgment is given priority. Here, the issue of overlapping classes creates problems. Do two class actions, which partially cover the same applicants, concern the same parties?

66

67

68

See Article 37(3)(b) in COM(2010) 748, Proposal for a Regulation of the European Parliament and of the Council on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (Recast). See D. Fairgrieve, “The Impact of the Brussels I Enforcement and Recognition Rules on Collective Actions”, in: D. Fairgrieve & E. Lein (eds.), Extraterritoriality and Collective Redress, Oxford University Press, 2012, pp. 171-189 at pp. 178-186. Ibid., p. 186 f.

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Compensatory Consumer Collective Redress and the Brussels I Regulation (Recast) Cristina González Beilfuss and Beatriz Añoveros Terradas 1. Introduction As is well known, individual consumers who have a legitimate complaint face several difficulties. Consumers are often not aware of their rights, and even if they are, they may not know how to claim them. The biggest problem, however, is the fact that the relatively small amounts which are frequently involved will inhibit consumers from taking legal action. Moreover, litigation can be disproportionally costly and time-consuming. All these difficulties in domestic cases are amplified in cross-border consumer disputes where the consumer might have to litigate abroad.1 In order to benefit from the Internal Market, it is very important that the consumer feels confident when he enters into a cross-border transaction.2 “All the consumer rights provided by the EC legislation and by domestic law 1

2

Other barriers have been stressed by the Commission in the Green Paper on Consumer’s Access to Justice and the Settlement of Consumer Disputes in the Single Market [COM (93) 576 Final]. Additional delays occur when letters rogatory have to be sent to the court of other Member States. And when the party who loses the dispute is domiciled in a country other than the one in which the court has handed down its decision, enforcement must be preceded by the recognition of the foreign decision. The Green Paper on Legal aid in civil matters also shows the difficulties met by cross-border litigants in obtaining access to legal aid [COM (2000) 51 Final]. Moreover, there are numerous differences in the procedural rules of the different Member States which may lead to advantages in selecting trial in one Member State rather than another (e.g. the costs of litigation). When dealing with consumer complaints, some – but not all – Member States have special procedures whose main features are their celerity and low cost. The Commission Consumer Policy Strategy [COM (2007) 99 fi nal fi xes the objective of promoting the retail internal market by making consumers and retailers as confident shopping cross-border as in their home countries by 2013. See Green Paper on Consumer Collective Redress (Brussels, 27.11.2008) COM (2008) 794 final, p. 2.

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will count for nothing if they cannot be effectively enforced”.3 The EU has enacted several Regulations with the aim of enabling the parties in crossborder situations to enforce their rights trough a simple procedure (small claim)4 or to seek an out-of-court settlement.5 Nevertheless, those initiatives are limited and have proven to be insufficient.6 One way to facilitate fair access to justice in cross-border consumer disputes is “collective redress”, a mechanism which would allow a large number of individuals to aggregate their similar claims in one action sharing the costs of the proceedings.7 Collective redress would also be an adequate means to protect the “public” Interests that might be at stake. Infringements of consumer rights that affect a very large number of individuals may create distortion in markets,8 which would be inadequately addressed by individual action.

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Howells / Wilhelmsson, EC Consumer Law, 1997, p. 259. The Stockholm Programme emphasises that the European Union needs to ensure that citizens and businesses, in particular Small and Medium-Sized Enterprises (SMEs), can use in practice the opportunities offered to them by the Single Market and the European area of justice. Rights which cannot be enforced in practice are worthless. Where substantive EU rights are infringed, citizens and businesses must be able to enforce the rights granted to them by EU legislation. (Council document 17024 / 09, adopted by the European Council on 10 / 11 / December 2009). Regulation (EC) No 861 / 2007 of the European Parliament and of the Council of 11 July 2007 establishing a European small claims procedure. Commission Recommendation 98 / 257 / EC on the principles applicable to the bodies responsible for the out-of-court settlement of consumer disputes, OJ L 115, 17.04.1998, p. 31 and Commission Recommendation 2001 / 310 / EC on the principles for out-of-court bodies involved in the consensual resolution of consumer ADR, OJ L 109, 19.04.2001, p. 56. See the report of the European Consumer Centre Network (ECC-Net): European Small Claims Procedure Report (September 2012), http: // ec.europa.eu / consumers / ecc / docs / small_claims_210992012_en.pdf. See as well Betlem, Public and Private transnational enforcement of EU Consumer Law, European Business Law Review, 2007, pp. 683-708. According to the Flash Eurobarometer on ’Consumer attitudes towards crossborder trade and consumer protection’ published in March 2011, 79% of European consumers agree that they would be more willing to defend their rights in court if they could join other consumers complaining about the same issue. Commission Staff Working Document. Public Consultation: Towards a Coherent European Approach to Collective Redress, Brussels, 4 February 2011. SEC (2011) 173 final, p. 3.

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2. Definition of collective redress: injunctive and compensatory actions The majority of Member States have compensatory collective redress mechanisms.9 Nevertheless, many differences exist among them and they have proven to be “limited in scope and effectiveness”.10 It is not the purpose of this paper to analyze the particular national mechanisms, nor to identify similarities and differences between them.11 It is however important to stress that those national mechanisms are generally restricted to national claims. A coherent approach to collective redress at EU level is therefore necessary to ensure effective enforcement of EU law.12 Any action at European level should particularly address the cross-border dimension of collective redress.13 As Hess points out “neither in the European Union Member States nor at the European level, is there any coherent definition of collective redress”.14 “Collective redress” is a broad concept encompassing any mechanism that may accomplish the cessation or prevention of unlawful business practices which affect a multitude of claimants or the compensation for the harm caused by such practices. There are two main forms of collective redress: by way of injunctive relief, claimants seek to stop the continuation of illegal behavior; by way of compensatory relief, they seek damages for the harm caused.’15 9

10

11 12

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Commission Staff Working Document. Public Consultation: Towards a Coherent European Approach to Collective Redress, Brussels, 4 February 2011. SEC (2011) 173 final, p. 3. CAFAGGI, F. - MICKLITZ, H.W.:” Collective enforcement of Consumer Law: a framework for comparative assessment”, European Review of Private Law, 2008-3, pp. 391-425. Tang, Consumer Collective Redress in European private international law, Journal of Private International law, vol.7, 2011, pp. 101-147, 102. Tang, Journal of Private International law, 2011, p. 105. Commission Staff Working Document. Public Consultation: Towards a Coherent European Approach to Collective Redress, Brussels, 4 February 2011. SEC (2011) 173 final, p. 5. Commission Staff Working Document. Public Consultation: Towards a Coherent European Approach to Collective Redress, Brussels, 4 February 2011. SEC (2011) 173 final, p. 6. Hess, A Coherent Approach to European Collective Redress, in Duncan / Lein(ed), Extraterritoriality and Collective Redress, 2012, pp. 107-118. Commission Staff Working Document. Public Consultation: Towards a Coherent European Approach to Collective Redress, Brussels, 4 February 2011. SEC (2011) 173 final, p. 3.

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This paper concentrates on compensatory relief. Injunctive collective redress is dealt with in another contribution16 and has probably received more attention than compensatory redress which is comparatively less developed at EU level. No general instrument on compensatory collective redress has so far been put forward by the EU,17 as contrasted to injunctions, where we already have an Injunctive Directive,18 as well as a leading case like Henkel,19 although the latter’s reasoning may hold some importance for compensatory relief as well. Two main types of compensatory collective redress actions can be distinguished. First, the so-called group action, in which defined claimants bring actions in one procedure to enforce their similar claims together, and each group member is a party in the proceedings. Second, there are the socalled representative actions, where a public authority, a consumer’s association or an individual brings an action on behalf of a group of individuals.20 The main difference between those mechanisms is the person / persons who may stand the process or the action and the type of interest they defend. In the case of representative actions a new litigating relationship is created between the claimant (public authority, consumer organization) and the defendant. The interests at stake are at least partly public. Group actions are actions with multiple claimants. They protect mainly “individual interests”. Several questions of private international law arise in connection to compensatory cross-border collective redress. This paper will only deal with the issue of jurisdiction. It will examine whether the jurisdiction rules of Brussels I Recast21 are adequate for collective compensatory redress actions, particularly in matters related to contract. We will not go through the 16

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See on injunctive relief the contribution, in this book, by Malgorzata PosnowWurm. European Parliament Report on ‘Towards a Coherent European Approach to Collective Redress’ (2011 / 2089 / INI), 12.1.2012; Green Paper on Consumer Collective Redress, COM(2008) 794 fi nal, Brussels, 27.11.2008 and White Paper on Damages Actions for Breach of the EC Antitrust Rules, COM(2008) 165 final, Brussels, 2.4.2008. Directive 98 / 27 / EC of the European Parliament and of the Council of 19 May 1998 on injunctions for the protection of consumers’ interests (codified by Directive 2009 / 22 / EC). Case C-167 / 00 Verein für Konsumenteninformation v Karl Heinz Henkel, 1 October 2002. Tang, Journal of Private International law, 2011, p. 105. 103. Regulation 1215 / 2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (recast), OJ L 351 20.12.2012.

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question whether public authorities acting on behalf of the consumer are covered by the material scope of application of the BIR since this question is addressed in another contribution included in this volume. The revision of the jurisdiction rules, operated by Regulation Brussels I recast, has not meant major changes in connection to the jurisdiction rules. The only amendment worth highlighting is the change of the scope of geographical application of Section 4 of Chapter II dealing with consumer contracts. Under Regulation 44 / 2001 that section only applies if the defendant is domiciled in a Member State; according to Regulation 1215 / 2012 the section will be applicable regardless of the defendant’s domicile.22 Art. 18.1 would therefore allow EU consumers to sue Third State suppliers in the courts of the Member state of the consumer’s domicile. The main purpose of this reform is to ensure the protection of EU consumers. It should however be borne in mind that in connection to compensatory actions such protection will only be effective if the supplier owns property in a Member State since such judgments will in all likelihood not be recognized outside the EU.

3. Collective consumer redress and the Brussels I Recast Regulation The Brussels I Regulation unifies the rules governing jurisdiction and the recognition and enforcement among the Member States. As said in the Preamble the common “rules of jurisdiction must be highly predictable and founded on the principle that jurisdiction is generally based on the defendant’s domicile and jurisdiction must always be available on this ground save in a few well-defined situations in which the subject-matter of the litigation or the autonomy of the parties warrants a different linking factor”.23 Therefore, in addition to the general forum of the defendant’s domicile the BIR establishes other alternative grounds of jurisdiction based on the close link between the court and the action or in order to facilitate the sound administration of justice. This paper will examine both the general and special grounds of jurisdiction established by the new Brussels I Regulation in order to ascertain whether they can be used to accommodate compensatory collective redress mechanisms. The provisions which will be examined are arts. 2 (domicile of the defendant), 7 (1) special jurisdiction in contractual matters and Section IV of Chapter II (Consumer contracts). None of them is particularly 22 23

See Paragraph 14 of the Preamble and art. 6.1 of Regulation 1215 / 2012. Para. 15.

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designed for collective redress. In fact, the rules of the Regulation were conceived for two-party proceedings; only art. 8.1 deals with proceedings where there is a number of defendants.

a) The domicile of the defendant Both in the case of representative and group actions Art 2 BIR can be used and therefore the courts of the defendant’s domicile have jurisdiction to hear the case. The ground for this criterion to be applicable does not change for the fact that the plaintiff is not an individual but a group of individuals domiciled in the same or in different Member States. Some authors have suggested that this ground for jurisdiction should be the only one in collective redress actions since it is the only central point where all claims and interests can be consolidated and taken into account by a single court.24 Furthermore, the existence of alternative fora in collective redress could lead to a discrimination among the potential victims who will have to make a choice and a danger of forum shopping depending on the procedure and the law applicable of the potential courts.25 Other arguments in favor of the general fora could be the danger of parallel collective redress proceedings if there are different courts with jurisdiction over the action. Nevertheless, as Nuyts points out, other arguments can be stressed to disregard the possibility of the defendant’s domicile as an exclusive rule of jurisdiction in collective redress actions. For example, the benefit that a rule in this sense would mean for corporations since they would always be defending the class action at home and the disadvantage for the potential consumers as far as they would always have to face the cost and difficulties of litigating abroad.26

b) Jurisdiction in consumer contracts Art. 7(1) BIR relates to contractual matters in general, whereas Art. 17 thereof relates specifically to various types of contracts concluded by consumers. 24

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Nuyts, The Consolidation of Collective Claims Under Brussels I, in this book; Kessedjian, Le droit entre concurrence et cooperation, in: Vers de nouveaux équilibres entre les orders juridiques – Liber Amicorum H. Gaudeme-Tallon, 2005, p. 129. We will come back to this point later on. Nuyts, The Consolidation of Collective Claims Under Brussels I, in this book. Nuyts, The Consolidation of Collective Claims Under Brussels I, in this book. Tzakas, 1155-1158.

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Art. 17 BIR thus constitutes a lex specialis in relation to Art. 7(1) BIR. It is therefore first necessary to determine whether a consumer collective action may fall within the scope of Art. 17 BIR27 before examining whether the general ground of jurisdiction in contractual matters established by art. 7 (1) may apply. Section IV Chapter II of the BIR establishes special protective fora for certain consumer contracts, aiming to protect the consumer by providing a procedural safeguard.28 Consumers, who are less experienced in legal matters and economically in a weaker bargaining position, must not “be discouraged from suing the other party to the contract by being compelled to bring their action before the courts in the Member State in which the other party to the contract is domiciled”.29 The protective role fulfilled by those provisions implies that the application of the rules of special jurisdiction laid down to that end by the Brussels I Regulation should not be extended to persons to whom that protection is not justified.30 Art.18 BIR provides that the consumer may choose whether to sue the supplier before the courts of the State where he, the consumer, is domiciled, or before the courts of the State where the supplier is domiciled. The first option (forum actoris) constitutes one of the principal mechanisms for the protection of the consumer;31 the second option corresponds to the general rule provided by Art. 2 BIR. On the other hand, the supplier may only bring an action against the consumer in the courts of the State of the consumer’s domicile.32 Furthermore, Art.19 BIR aims to limit the enforceability of jurisdiction agreements. The main objective of Art.19 BIR is to protect the consumer33 by preventing the supplier from avoiding, through a choice of forum clause, the provisions laid down in Art.17 and Art.18 BIR, e.g. by limiting the choice granted to the consumer and / or avoiding restriction imposed on him.34 Thus, a choice of forum clause granting jurisdiction to a court other than those provided for in Section IV is valid only if it complies with the conditions laid down in Art.19 BIR.

27 28 29 30 31 32

33 34

Case C-27 / 02, Petra Engler v Janus Versand GmbH,20 January 2005. Tagaras, 1995 1-2, Cahiers de droit européen, p. 170. Case C–89 / 91 Shearson Lehman Hutton v. TVB, 1993 ECR I.–139 at point 17. Case C–89 / 91 Shearson Lehman Hutton v. TVB, 1993 ECR I.–139 at point 18. O’Malley / Layton, European Civil Practise, 1989, p. 509. In addition to that, Art. 16(3) BIR states that “Th is Article shall not affect the right to bring a counter-claim in the court in which, in accordance with this Section, the original claim is pending”. Art. 17(3) BIR, however, is intended to protect the supplier. O’Malley / Layton, 1989, p. 513.

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Section IV BIR does not refer to collective consumer redress actions as a special category, although at the time of the revision of the Brussels and Lugano Conventions some delegations proposed an amendment35 to include in Art.15 BIR a special section concerning injunctions. However, no agreement was reached. As Lein point out it is astonishing that the subject received so little attention within the Brussels I review process.36 Only in its Resolution of 7 September 2010 on the implementation and review of the Brussels I Regulation, the European Parliament mentioned that the Commission’s forthcoming work on collective redress instruments might need to contemplate special jurisdiction rules for collective actions. Nevertheless, the Brussels I Review Proposal37 mentioned collective redress in its Art 37(3)b only in the framework of Enforcement (art. 37(3)(B) within no parallel provisions in the jurisdiction section. At the end, the Regulation Brussels I Recast has not introduced any changes in connection to collective redress.

aa) Applicability of Section 4 Chapter II to compensatory collective redress: representative and group actions

For Section IV of the BIR to be applicable the following requirements must be fulfilled: first of all, the person who enters into an international contract must be a consumer according to the definition given by the BIR (Art. 17 (1) BIR); secondly, Art. 17 (1)(c) BIR imposes certain conditions relating to the conclusion of the contract, but these provisions do not apply to contracts for the sale of goods on instalment credit terms, or to a loan repayable by instalments, or any other credit arrangement made in order to finance the sale of goods. The term “person” is used in Art. 17 BIR in a general way, i.e. it does not refer to any particular kind of person, as some Directives and Regulation Rome I do.38 This gives rise to the question whether only individuals (natu35

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Sweden made a proposal to include a specific section regarding injunctions (Document 6248 / 98 LIMITE JUSTCIV12, 27th of February) rejected in the fi ft h meeting of the ad hoc Working Party on the Revision of the Brussels and Lugano Convention (Interlaken, 14 to 17th September 1998). Lein, Cross-Border Collective Redress and Jurisdiction under Brussels I, in: Fairgrieve / Lein, Extraterritoriality and Collective Redress 2012, 141. Brussels I Review Proposal (COM(2010), 748 fi nal). Art. 6 of the Rome I Regulation establishes: “1. Without prejudice to Articles 5 and 7, a contract concluded by a natural person for a purpose which can be regarded as being outside his trade or profession (the consumer) with another person acting in the exercise of his trade or profession (the professional) shall be governed …”

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ral persons) benefit from the special jurisdiction rules or other persons (companies, corporations, etc.) may be also regarded as consumers. The wording of Article 17 BIR does not expressly exclude companies and other entities from falling within the concept of consumer, although companies normally act in a business capacity. Some non-trading companies such as “those formed for the promotion of art, science, education, religion or charity, could be held to be acting outside of any trade or profession”.39 The consumer may assign his claim to a company. That was the situation in the Shearson Lehman Hutton Inc. v. TVB case.40 In order to be regarded as a consumer, the assignee company has to fulfill the requirements laid down by Art. 17 BIR. In view of the ECJ, Art. 17 BIR only protects a private final consumer not engaged in trade or professional activities and who is a party to the action in accordance with Art. 17 BIR. Thus, Section IV Chaper II of the Regulation would not apply to a plaintiff who is acting “in pursuance of his trade or professional activity and who, therefore, is not himself a consumer party to one of the contracts listed in Art. 13(1) BC [now Art. 17 BIR]” might therefore be included. The Court of Justice followed this interpretation in the Henkel case41 where an Austrian consumer protection organisation VKI brought an action seeking an injunction against Mr Henkel (a trader domiciled in Germany) to prevent him from using unfair terms in contracts concluded with Austrian clients. The ECJ ruled that “the consumer protective rules on jurisdiction provided for in Section IV of the Brussels I Regulation are not applicable to injunctive collective redress initiated by a consumer’s association”. At this point, the question which arises is whether the same outcome applies to compensatory consumer redress. The answer to this question may differ depending on the type of compensatory consumer redress mechanism. In its case-law with regard to the interpretation of the former Section IV of the BC, the Court of Justice of the European Union has laid down three main canons of construction: autonomous interpretation, restrictive interpretation, and teleological interpretation. In the light of these principles we will now try to outline the main difficulties in the application of IV to consumer compensatory collective redress. In the case of a representative action, the consumers are not the parties in the proceedings. The action is brought either by a public authority, a consumer association or an individual consumer on behalf of the group. 39 40

41

Kaye, Civil Jurisdiction and Enforcement of Foreign Judgments, 1987, p. 829. Case C-89 / 91 Shearson Lehman Hutton Inc.v. TVB Treuhandgesellschaft für Vermögensverwaltung und Beteiligungen mbH, 19 January 1993. Case C-167 / 00 Verein für Konsumenteninformation v Karl Heinz Henkel, 1 October 2002.

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As the CJEU rules Section IV BIR “only protects the consumer who is itself party in the proceeding”. With this restrictive interpretation it is difficult to fit a representative action in the scope of application of Section IV BIR. Nevertheless, some authors42 claim for a teleological interpretation of the protective fora with regard to this issue especially when a consumer association brings the action. The relevant factor should be the inexistence of bargaining power and the weaker position of the person who brings the action vis-à-vis the other party. It would therefore be necessary to distinguish between cases, on the one hand, in which the Consumer association acts “on behalf of ” or as a representative of individual consumers on the one hand and, cases in which it pursues its own interest on the other. In the first case, the action is brought on behalf of the consumer who has given a mandate to the organisation in question. In such a case, attention should be paid to the position of the consumers.43 The consumer association is acting in the proceedings to claim for the protection of individual rights (the rights of its affiliates). Therefore, the protective fora should also be applicable to the consumers’ association in order to facilitate consumer’s access to justice.44 Another justification for allowing consumer associations to benefit from the protective fora established in Section IV Chapter II is the danger of jurisdiction clauses and the protection afforded by art. 19 BIR. To avoid the potential negative consequences a choice of forum clause may cause for the consumer, Art 19 BIR limits party autonomy in consumer transactions. Nevertheless, Art. 19 BIR only applies when Section IV is applicable and therefore when there is a consumer contract in the terms of Art 17(1) BIR. If a consumer association is not covered by Section IV BIR, the effectiveness of a jurisdiction clause will be scrutinised according to Art 25 BIR and not by Art. 19 BIR. This reasoning may be used by the big corporation to include such clauses in mass contracts (ineffective according to Art 19 and valid under Art 23BIR). Other authors, like Kessedjian,45 have, however, observed that a real weakness deserving special procedural protection does not exist if the consumer gives a mandate to a consumer association. In her opinion the 42

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Carballo, Las acciones colectivas y su eficacia extraterritorial. Problemas de recepción y trasplante de las class actions en Europa, Universidad de Santiago de Compostela, 2009, pp. 107; Jimenez, El tratamiento de las acciones colectivas en materia de consumidores en el Convenio de Bruselas, La Ley, 2003, pp. 1573-1583. Carballo, 2009, pp. 107. Jimenez, La Ley, 2003, pp. 1573-1583. Kessedjian, L’action en justice des associations de consommateurs et d’autres organisations représentatives d’intérêts collectifs en Europe, 1997, 2 Riv. dir. int. priv. proc., p. 282.

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consumer can choose whether to assign his claim to a consumer association or to bring an action himself. In the former case Section 4 would not be applicable. In our view the current case-law of the ECJ with regard to the interpretation of Section 4 seems to favour a restrictive interpretation rather than a teleological one. Art.17 BIR cannot be applicable in all situations in which a difference in bargaining power exists.46 Only those persons for whom proceedings are something unusual47 must be protected; i.e. “consumers” strictu sensu. Parties who act in a business capacity, even when less experienced than the other contracting party, must foresee the possibility of litigation.48 Following this interpretation it is really difficult to extend the protective fora to consumer associations. Furthermore, even if we accept a positive position we still would have to admit that the term “person” used in Art.15 BIR in a general way refers both to individuals (natural persons) and other persons (companies, corporations, etc.). It should as well be taken into account that the European legislator could have clarified the matter in its recent recast of Regulation Brussels I. The revision of the jurisdiction rules might have been the occasion to depart from the Court of justice’s restrictive interpretation of the scope of application of the Section 4. Since this did not happen we tend to think that representative compensatory relief actions are not covered by Section 4 BIR. The second situation that must be dealt with refers to cases in which the consumer association does not represent consumers but promotes a group action. Group actions present two main features: first, there is a group of claimants that belong to the category of consumer; second, they decide to claim all together in a sole action. In such a case the limitation imposed by the ECJ in Henkel would not exist since the consumer is himself party in the proceeding. The question which arises is whether the fact that the consumers act together may compensate the unbalance in the bargaining power. Do they still need the procedural protection? The answer to this question is uncertain but one might certainly argue that the text of the provision allows to include consumer group actions. Assuming Section 4 is applicable, it is still necessary to overcome some obstacles. First, Art. 15 BIR refers to “matters relating to a contract concluded by a person …” The wording refers to an individual consumer who has concluded a contract. In our opinion there should be no problem in accepting a broader interpretation in such a case in order to accommodate a group action taking into account that the Brussels I Regulation is based on 46 47 48

Bischoff, Journal de droit international, 2, 1998, p. 584. Bischoff, Journal de droit international, 2, 1998, p. 584. Bischoff, Journal de droit international, 2, 1998, p. 584.

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individual claims as said before. Second, difficulties may arise with regard to the application of Art. 16 BIR, if several consumers are involved in the action and they have their domicile in different Member States. Which will be the domicile to allocate the forum actoris? Will all of them qualify as the proper protective forum? We will come back to this question later on when discussing similar problems in connection to Art. 7(1) BIR. All in all it is evident that Section 4 Chapter II BIR was not designed to cover consumer collective redress. The recent revision of BIR was not used to amend these provisions and clarify the situation.

c) Jurisdiction in consumer contracts in matters relating to a contract: art. 7(1) BIR Compensatory relief actions, particularly representative actions do not fit well in Section 4 Chapter II BIR. The next step is therefore to examine whether the special ground of jurisdiction provided for in art. 7(1) BIR can be applied. It refers to “matters relating to a contract”. In the case at stake the action is brought by a representative “on behalf of ” the consumers. The litigating party is therefore the representative (either a public authority or a consumer organization). There is a contractual relationship between each individual consumer and the defendant but such a relationship does not exist between the representative and the defendant. There is no contract between the litigating party and the defendant. The question which arises at this point is whether this assumption poses a problem in the application of art. 7(1) RBI. Art 7(1) does not expressly require the existence of a relationship between the litigating parties. Nevertheless, in Henkel the ECJ ruled that “In a situation such as that in the main proceedings, the consumer protection organization and the trader are in no way linked by any contractual relationship. Admittedly, it is likely that the trader has already entered into contracts with a number of consumers. However, whether the court action is subsequent to a contract already concluded between the trader and a consumer or that action is purely preventive in nature and its sole aim is to prevent the occurrence of future damage, the consumer protection organization which brought that action is never itself a party to the contract. The legal basis for its action is a right conferred by statute for the purpose of preventing the use of terms which the legislature considers to be unlawful in dealings between a professional and a private final consumer. In those circumstances, an action such as that brought in the main proceedings

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cannot be regarded as a matter relating to a contract within the meaning of Article 5(1) of the Brussels Convention”.49 In the Henkel case the consumer association brought an injunction in order to prevent a company from using unfair terms in its contracts with consumers. The legal basis of the consumer association standing was conferred by statute. Would the decision of the court be different if the representative right to sue would have been conferred by contract? Is the subject-matter in dispute the relevant factor or the contractual relationship between the litigating party and the defendant? Is the statement of the Court in Henkel also applicable when the representative is claiming damages arising out of consumer contracts? In our view, the wording of Art. 7 (1) allows to cover representative actions claiming damages arising out of consumer contracts. “In matters relating to a contract” could be understood as referring to the subject-matter in dispute instead of the contractual relationship between the litigating party and the defendant.50 Moreover it should as well be borne in mind that in compensatory collective redress actions the legal basis of the consumer association’s standing would not be conferred by statute, but by mandate, it would be itself of contractual nature.

aa) The application of the proper rules on jurisdiction: plurality of consumers domiciled in different Member States

Once we have identified the rule of jurisdiction applicable to a particular consumer collective action, we still face difficulties with regard to the allocation of jurisdiction to a specific court of a Member State. As mentioned before, difficulties may arise in connection to the application of Article 18 BIR to a group action, when it involves several consumers, who have their domiciles in different Member States. Article 18 allows the consumer to bring proceedings against the other party either in the courts of the Member State of the defendant’s domicile or to sue in the courts of the consumer’s domicile. If the action is collective, which is the consumer’s domicile that will be used as a forum actoris? Similarly, the application of Art 7 (1) BIR to a representative collective consumer action may give rise to some questions of application. In matters 49 50

Henkel, para 38, 39, 40. See this distinction between the subject-matter of the dispute in question and the relationship between the litigating party and the defendant in Tang, Journal of Private International law, 2011, p. 111.

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relating to a contract, Art. 7 (1) (a) BIR provides that the defendant can be sued in the place of the performance of the obligations in question. For the purpose of this provision, and unless otherwise agreed, letter (b) of article 7 (1) BIR determines the place of performance in two given contracts: in the case of the sale of goods such a place is the place of where the goods were delivered or should have been delivered; in the case of the provision of services, the place where the services were provided or should have been provided. These criteria will be easily applied in a consumer contract because “most consumer contracts are contracts concerning the sale of goods or the provision of services, and contract terms usually specify the place of delivery or the place for the provision of services.”51 Again the problem which arises is to allocate jurisdiction when there are several places of performance (delivery of goods / provision of services) which will probably correspond to several consumers domiciled in different Member States involved in the action in question. As seen, both Art. 17 and Art 7 (1) BIR may give rise to difficulties in their application when there is a multiplicity of plaintiffs domiciled in different Member States. Nevertheless, there is an important difference between these grounds for jurisdiction. Art 18 BIR establishes a forum actoris which aims to protect the consumer. It is therefore a protective fora based on the principle of protection. On the contrary, Art 7 (1) BIR constitutes a special head of jurisdiction based on the principle of proximity. As Briggs points out special grounds for jurisdiction in BIR “represent some sort of attempt to confer jurisdiction, in various categories, upon the court which in general terms may be expected to have a close connection with the individual case52”. Let’s examine first the applicability of Art 18 BIR. Is it possible to identify one of the consumer’s domiciles as the proper “protective fora” in a crossborder collective action? Shall all consumers’ decide to sue the supplier in one of the domiciles? There is no settled case-law with regard to multiple consumers domiciled in different Member States who decide to bring a group action in one Member State. Nevertheless, we may consider the application of some arguments used by CJUE in cases of multiple places of performance. As said before, similar questions arise concerning the application of Art 7(1) BIR; could the representative action be brought at any place of performance and would the courts of that country have jurisdiction over all the contracts? We will examine now the ECJ case law in order to draw the different solutions and its applicability to both, Art 18 BIR and Art. 7 (1) BIR. 51 52

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Tang, Journal of Private International law, 2011, p. 115. Briggs / Rees, Civil Jurisdiction and Judgments, 5th ed., 2009, p. 211.

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Compensatory Consumer Collective Redress and the Brussels I Regulation (Recast)

First, we may try to identify one of the courts as the proper court to hear the whole case. It is procedurally undesirable to split the jurisdiction among the courts of several Member States. The principle of proximity and predictability may lead us to identify one single court. In line with this idea, the ECJ has tried to support a general principle of looking at the center of gravity in order to reduce the potential courts with jurisdiction.53 Following this idea, the national courts are encouraged to identify one of the places of performance of the obligation at stake as the principal one and assert jurisdiction in that place. In Color Drack,54 for instance, the ECJ ruled that where goods are delivered in several places in one Member State (as Briggs points out, in cases of micro-multiciplicity),55 the court of the principal place of delivery is entitled to hear all claims. In order to define the principal place of delivery, economic criteria should be used. When this is not possible, the claimant is entitled to choose where to sue. Where services are provided or goods delivered in several places in different Member States (cases of macro-multiplicity) this principle may not always work. In its decision in Air Baltic,56 concerning the carriage of passengers by air, the ECJ could identify neither the place of departure nor the place of arrival as the center of gravity. Both the place of departure and the place of arrival had sufficient connections. It was then a decision of the plaintiff whether to sue in either of such the places. In Wood Floor57 there were more than two places of delivery and the Court held that where services are provided in several Member States, the place where the main services are provided has jurisdiction to determine all claims arising from the contract. The question which arises is: which is the place where the main services are provided? In the Wood Floors case the contract was an agency contract. With regard to agency contracts the court held that the place where the main services were provided was: the place that appeared in the contract, the actual performance of the contract or, where the agent is domiciled.58 Can we extend the principle of center of gravity to consumer compensatory collective redress? In the case of a group action under Art 18 BIR, the main problem which may arise is an issue of discrimination. We have seen how Section 4 Chapter II BIR and specially Article 18 BIR aim to protect 53 54

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Briggs / Rees, 2009, p. 211, p. 234. Case C-386 / 05, Color Drack Gmb v. Lexx International Vertriebs GmbH, 3 May 2007. Briggs, p. 234. Case C-204 / 08, Peter Rehder v. Air Baltic Corporation, 9 July 2009. Case C-19 / 09, Wood Floor Solutions v. Silva Trade SA, 11 March 2010, at para 24-29. Para. 38-42.

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the consumer by giving him the possibility to sue at his or her domicile. If the national court has to identify one of the consumers’ domiciles as the center of gravity of the collective action in question, the consumers whose domicile has not been chosen may feel they have been discriminated against (they are not protected any more). Furthermore, which will be the criteria used by the national court to decide which consumers’ domicile is the center of gravity. Will it depend on the number of consumers? Therefore, even if there is a forum where most of the consumers have their domicile which could be identified as the center of gravity, the principle of nondiscrimination must lead us to dismiss this interpretation. It is therefore, difficult to accept the application of Art. 18 BIR. In such circumstances it will probably be fairer to litigate before the courts of the defendant’s domicile under Art 2 BIR. This will not prevent some consumers from bringing a related class action before the courts of their domicile with the subsequent problem of lis pendens.59 Furthermore, if consumers resident in the different Member States decide to bring a Pan European class action in the defendant’s domicile, they might have to face a problem of national procedural law. However, as Zheng points out, the preference for the defendant’s domicile prevents the collective action from being filed in cases in which, although the business’ commercial activities are spreading over many Member States, the number of consumers in each state is not high enough to make collective action feasible.60 Nevertheless, that solution seems to be fairer provided that national procedural law does not preclude it and a quick enforcement of judgments is provided. In the case of a representative action brought under Art 7 (1) BIR, the court of the place of performance of the contract in question will have jurisdiction. Generally speaking this place will be the place of delivery of the goods or the place where the services have been provided. This place will easily coincide with the place of the consumer’s domicile.61 Can we apply in this case the doctrine of the center of gravity laid down by the ECJ in order to identify one court with jurisdiction over the whole claim? The special jurisdiction ground in Art 7 (1) BIR is, as said before, based on the principle of proximity. Under this principle there is no problem in identifying the closest court or the center of gravity of the action in question. We can use the ECJ’s settled case law with regard to multiple places of performance and use different criteria to allocate jurisdiction to the closest court. There is nevertheless an important difference between a collective action and the

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Tang, Journal of Private International law, 2011, p. 105. Tang, Journal of Private International law, 2011, p. 141. Tang, Journal of Private International law, 2011, p. 140.

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Compensatory Consumer Collective Redress and the Brussels I Regulation (Recast)

cases decided by the ECJ.62 In those cases there was one contract with multiple places of performance, whereas in the case of a collective action there are several contracts with one pace of performance each. As has been pointed out ‘where there are two contracts it is doubtful that proceedings can be brought at the pace of performance of a giving contract, even if the legal and factual issues are the same’.63 Following this interpretation it is doubtful that Art 7 (1) BIR allows aggregating all the contract claims before the place of performance of one of them.64 Its wording suggests that jurisdiction is provided for each individual contract. It could, nevertheless, allocate claims that relate to several contracts but performance in the same Member State. Second, we may decide that there are several courts with potential jurisdiction over the contractual claims that have a connection with the forum. The contractual claim is divided and the Shevill’s principle of strict proximity extended to compensatory consumer collective redress action. We see no advantages in this solution since there will be several collective actions and not a pan European collective action against the defendant.

4. Concluding remarks As has been shown, the rules of jurisdiction of the BIR do not fit well to allocate jurisdiction for cross-border compensatory class action. The revision of the jurisdiction rules might have been the occasion to introduce a special rule for collective actions but unfortunately, this did not happen. On the contrary, the BIR Recast has not meant a significant change with regard to class action. The only amendment worth highlighting is that the new Section 4 applies regardless of the defendant’s domicile and, it would therefore allow EU consumers to sue Third State suppliers in the courts of the Member state of the consumer’s domicile. Nevertheless, as said, the impact of this amendment would only be worthwhile if the supplier owns property in a Member State since such judgments will not be recognized outside the EU. In this paper we have analysed the allocation of jurisdiction for crossborder compensatory consumer class action using the present rules, the general and special grounds of jurisdiction in the BIR Recast. We have disregarded the existence of an exclusive rule of jurisdiction in the defendant’s domicile despite it allows to concentrate the action in one sole jurisdic62

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Color Drack, case C-386 / 05, [2007] ECR I-3699; Wood Floor, case C-19 / 09 [2010] ECR I-2121. Nuyts, The Consolidation of Collective Claims Under Brussels I, in this book. Nuyts, The Consolidation of Collective Claims Under Brussels I, in this book.

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tion because it presents several disadvantages for consumers. The application of the protective fora differs depending on the type of compensatory consumer redress mechanism. In the case of a representative action, the current case-law of the ECJ with regard to the interpretation of Section 4 seems to favour a restrictive interpretation rather than a teleological one. Therefore, we cannot use section 4 to allocate jurisdiction in such cases. In the case a group action even if Section 4 is applicable, it is still necessary to overcome some obstacles especially in the case of multiplicity of consumers domiciled in different member States. The special fora in “matters relating to a contract” can fit a representative action although it may also arise several difficulties when there is a plurality of consumers. The use of the current CJEU case-law with regard the center of gravity may help but it is not a doctrine held for cases in which there is a plurality of consumers and several contracts. All in all, the present rules of jurisdiction of the Recast continue to pose many problems in order to accommodate collective action. There is still a need for reform of these rules in the framework of the coherent European approach to collective redress that has been initiated.

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Rethinking Collective Redress, Consumer Protection and Brussels I Regulation Małgorzata Posnow-Wurm 1. The Henkel case connecting collective redress, consumer protection and Brussels I Regulation According to European Commission staff working document, Public Consultation: Towards a Coherent European Approach to Collective Redress, “Collective redress is a broad concept encompassing any mechanism that may accomplish the cessation or prevention of unlawful business practices which affect a multitude of claimants or the compensation for the harm caused by such practices (…)”.1 An examination of existing European Union law, following this broad definition, reveals that consumer protection is the only field in which legal instruments relating to collective redress are already in place. Those instruments are Directive 2009 / 22 on injunctions for

*

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The author is currently employed by the European Commission. The content of this article does not reflect the official opinion of the European Union. Responsibility for the information and views expressed in this article lies entirely with the author. The present paper touches on some of the problems analysed in greater depth in: Małgorzata Posnow-Wurm, Mémoire de certificat de formation à la recherche (CFR), «Les recours collectifs et les confl its de compétences en droit de l’Union européenne», Faculté de droit et de criminologie de l’Université Libre de Bruxelles, Centre de droit privé, Unité de droit international privé, Directeur du mémoire: Professor Arnaud Nuyts: Revue de droit de l’U.L.B. 2010 / 1-2, 1re édition 2010. According to this defi nition “(…) There are two main forms of collective redress: by way of injunctive relief, claimants seek to stop the continuation of illegal behaviour; by way of compensatory relief, they seek damages for the harm caused. Collective redress procedures can take a variety of forms, including out-of-court mechanisms for dispute resolution or, the entrustment of public or other representative entities with the enforcement of collective claims. “European Commission, “Commission Staff Working Document Public Consultation: Towards a Coherent European Approach to Collective Redress”, Brussels, 4 February 2011, SEC (2011)173 final, www.europa.eu.

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the protection of consumers’ interests (Injunctions Directive)2 and Regulation 2006 / 2004 on consumer protection cooperation (CPC Regulation).3 Furthermore, looking at European case-law we find a judgment of the European Court of Justice applying the European rules on jurisdiction to cross-border collective redress in the field of consumer protection: it is the “Henkel case”.4 The purpose of this paper is to identify which questions relating to interplays between the Brussels I Regulation (recast),5 collective redress and consumer protection can be regarded as having been answered by the European Court of Justice judgment, and which problems remain unresolved. The red line of this analysis is our own classification of collective redress, which underlines the main characteristics of the various potential judicial proceedings, such as: the injunctive or compensatory effect of the proceedings, the legal character of the person having the status to sue (person governed by the private law or public body), and finally the nature of interests defended in the proceedings: on the one hand we have collective redress which defends only the “collective interests” of one or another class in society without pursuing the “individual interests” of its members , while on the other hand we have collective redress which defends both collective interests and individual interests of the victims.6

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Directive 2009 / 22 / EC of the European Parliament and of the Council of 23 April 2009 on injunctions for the protection of consumers’ interests, O.J. 2009 L 110 / 30. Regulation (EC) No 2006 / 2004 of the European Parliament and of the Council of 27 October 2004 on cooperation between national authorities responsible for the enforcement of consumer protection laws (the Regulation on consumer protection cooperation), O.J. 2004 L 364 / 1. ECJ [ 2002] (C-167 / 00, Verein für Konsumenteninformation v. Karl Heinz Henkel), the case-law of ECJ referred in this paper to is available on www.curia.eu and www.eur-lex.eu. Regulation (EC) No 1215 / 2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (recast), O.J. 2012 L 351 / 1. For the purpose of this paper the terms of class (group) action and representative action are understood as follows: ‘class (group) action’ - a single compensatory action which is brought jointly by those who have been harmed by the same or similar illegal practice of a single or several traders; the court may allow other individuals harmed by the same or similar illegal practice to join, after the court procedure has started, provided that this does not impair the sound administration of justice; ‘representative action’ – action which is brought by a natural or legal person or an entity (which can also be a public authority) on behalf and in the

Małgorzata Posnow-Wurm © sellier european law publishers www.selllier.de

Rethinking Collective Redress, Consumer Protection and Brussels I Regulation

According to Henkel case, the rules on jurisdiction laid down in Brussels I Regulation [recast] must be interpreted as meaning that a preventive action brought by a consumer protection organisation for the purpose of preventing a trader from using terms considered to be unfair in contracts with private individuals is a matter relating to tort, delict or quasi-delict within the meaning of [Article 7, point (2)] 7 of that Regulation. This one sentence covers a number of assumptions and questions, which we will discuss in this paper.

2. The material scope of Brussels I Regulation and collective redress: action brought by a person governed by private law v. action brought by a public body According to Henkel case, injunctive collective redress initiated by a consumer association is covered by the material scope of Brussels I Regulation [recast]. The question remains: what about collective redress initiated by public body? In fact, public body can initiate collective redress, both injunctive and compensatory, though this can only be done through representative action. The new wording of the Brussels I Regulation (recast) makes it clear that the Regulation “shall apply in civil and commercial matters whatever the nature of the court or tribunal. It shall not extend, in particular, to revenue, customs or administrative matters or to the liability of the State for acts and omissions in the exercise of State authority (acta iure imperii).”8 However, this new wording refers to the scenario when the public body is acting on the defendant and not on the claimant side. Hence, the question of the applicability of Brussels I Regulation [recast] to the actions brought by the public body remains unsolved. According to the settled ECJ case-law actions between a public authority and a person governed by private law fall outside the scope of the Brussels I

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name of a group of either defined or identifiable individuals harmed by the same or similar illegal practice of a single or several traders. Previously Article 5, point (3) of the Regulation (EC) No 44 / 2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, O.J 2001. L 12 / 1, ECJ [ 2002] (C-167 / 00, Verein für Konsumenteninformation v. Karl Heinz Henkel) Holdings. Regulation (EC) No 1215 / 2012 , Article 1.

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Regulation [recast]. Nevertheless, this is true only in so far as that authority is acting in the exercise of public powers [State authority].9 According to the ECJ case-law there are two criteria for identifying the exercise of public powers [State authority]: “the nature of the legal relationships between the parties to the action or the subject-matter of the action.10 It seems apparent from the established case law that each of the two conditions is self-sufficient.11 It is clear, says the Court in Henkel, that a consumer association is a private body.12 It is a non-profit-making organisation whose object is the protection of consumers and their interests. It has to be regarded as a private body, continues the Court, even if: such an organisation takes on the task, in the public interest, of ensuring the protection of the entire class of consumers and even, if its right to bring proceedings to obtain an injunction stems from statute, independently of any private law relationship arising out of a contract between a professional and a private individual. In addition, holds the Court, the subject-matter of the main proceedings is not an exercise of public powers [State authority], since those proceedings do not in any way concern the exercise of powers derogating from the rules of law applicable to relations between private individuals.13 On the contrary – underlines the Court – the action of a consumer association concerns the prohibition on traders’ using unfair terms in their contracts with consumers and thus seeks to make relationships governed by private law subject to review by the courts. Hence, an action of that kind is, according to the Court, a civil matter within the meaning of the first paragraph of Article 1 of Brussels I Regulation [recast].14

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ECJ [1976] (C 29-76,‘LTU v Eurocontrol) para. 5; ECJ [2002] (C-167 / 00, Verein für Konsumenteninformation v. Karl Heinz Henkel) para. 26. It seems that the ECJ case-law is still relevant to the interpretation of the Brussels I Regulation (recast) , even if one may say that the terms interpreted by the ECJ, namely “exercise of the public power” should now be replaced, by the term “exercise of the State of authority”. Nevertheless the Latin term used by the Brussels I Regulation (recast) is still the same as the one used by ECJ, namely “acta iure imperii”. ECJ [1976] (C 29-76, ‘LTU v Eurocontrol), para. 4. Opinion of Advocate General Légerd delivered on 5 December 2002 in C-266 / 01 ‘Préservatrice Foncière TIARD SA v Staat der Nederlanden’, para. 42. ECJ [2002] (C-167 / 00, Verein für Konsumenteninformation v. Karl Heinz Henkel) para.14. ECJ [2002] (C-167 / 00, Verein für Konsumenteninformation v. Karl Heinz Henke) para 25 and 30. ECJ [2002] (C-167 / 00, Verein für Konsumenteninformation v. Karl Heinz Henkel), para. 30.

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Rethinking Collective Redress, Consumer Protection and Brussels I Regulation

The doubt left open by Henkel is whether the subject-matter criterion could have the same force in the case of an action brought by a public body. Could the Court say of a public body that it is not acting in the exercise of public power [State authority] even if acting in the public interest to ensure the protection of collective interests of an entire class of consumers and even if its right to bring proceedings to obtain an injunction stems from statute and not from a contract? What significance could this question have in practice? Depending on the answer, Brussels I may or may not determine the competent jurisdiction for actions brought by public bodies in the framework of both the Injunctions Directive and the CPC Regulation.15 This is because the provisions of both the Directive and the Regulation are without prejudice to private international law.16 As the European Commission report observes, “One very important result of the Directive is certainly the introduction in every Member State of an injunction procedure to protect the collective interests of consumers”.17 Collective interests mean interests which do not include the cumulation of interests of individuals who have been harmed by an infringement. This is without prejudice to individual actions brought by individuals who have been harmed by an infringement.18 Even if the injunction procedure introduced by the Directive does not provide for consumers who have suffered harm because of an illicit practice to obtain compensation, it enables illicit practices to be stopped in the collective interest of consumers regardless of any harm actually caused. Thanks to this harmonisation the question of which court within the European Union has jurisdiction for this kind of ac15

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A thorough analysis of both instruments and their relationship to private international law has been conducted by Betlem, Gerrit, Public and Private Transnational Enforcement of EU Consumer Law, European Business Law Review, 2007, Vol. 18, No. 4, pp. 683-708. However, the author does not answer the question of whether an injunctive action brought by a public body comes under the material scope of the Brussels I Regulation. Directive 2009 / 22 / EC Recital 7 and Art. 2 para. 2; Regulation (EC) No 2006 / 2004 Art. 2 para. 2. European Commission, Report from the Commission concerning the application of Directive 98 / 27 / EC of the European Parliament and of the Council on injunction for the protection of consumers’ interest, Brussels, 2008, COM (2008) 756 final ; European Commission, Report from the Commission to the European Parliament andthe Council concerning the application of Directive 2009 / 22 / EC of the European Parliament and of the Council on injunctions for the protection of consumers’ interest, Brussels, COM(2012) 635 final. Directive 2009 / 22 / EC, Recital 3.

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tion is, therefore, of practical significance because a “qualified entity” under the Directive can be sure -when planning for a given set of proceedings- that such kind of proceedings exist in the legal systems of each Member State. This is still not the case within the EU for compensatory collective redress. Although, a such harmonisation of national procedural law is, in our opinion, a prerequisite for sound operation of the Brussels I Regulation (recast) in the context of European framework of collective redress. Under Article 4, point (1) of the Injunctions Directive: “Each Member State shall take the measures necessary to ensure that, in the event of an infringement originating in that Member State, any qualified entity from another Member State where the interests protected by that qualified entity are affected by the infringement, may apply to the court or administrative authority (…)”. The courts or administrative authorities shall accept the list of the qualified entities drawn up under the Directive “as proof of the legal capacity of the qualified entity without prejudice to their right to examine whether the purpose of the qualified entity justifies its taking action in a specific case”. In other words, in the event of an intra-European Union infringement that harms the collective interests of consumers in a Member State, any qualified entity in that Member State may institute an action for injunction in another Member State where the infringement originated. The aim of this procedure is to neutralise commercial operators who undertake activities that are prejudicial to the collective interests of consumers in another Member State. As clarified by the European Commission the Directive was crafted to permit qualified entities of Member State A to pursue business operators in Member State B if the latter, by trading with consumers in Member State A, were breaching consumer laws. In order to make this possible the qualified entities were vested with legal standing in foreign courts. The Court in Member State B, served with a request to issue an injunction against a trader established within its jurisdiction, would hear and decide the case without questioning the legal standing of the qualified entity of Member State A.19 With regard to jurisdiction, this opportunity given by the Injunctions Directive is granted without prejudice to the rules of private international law. Accordingly, in the event of an infringement originating in Belgium, the Polish public body designated as the qualified entity will have the right to bring an action before the Belgian courts, but it will ultimately be the rules of Brussels I Regulation (recast) or on the contrary, because of the limits of its material scope, the national private international rules decide whether the Belgian courts are the competent jurisdiction. Nor does the Directive determine whether the qualified entity is entitled to sue in a given

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case. This question remains at the discretion of the court.20 Nevertheless, as the European Commission also notes, “The use made of the Directive to counter cross-border infringements has been disappointing”.21 The main reasons mentioned by both the Member States and the interested parties to explain the small number of injunctions sought in another Member State are the cost of bringing an action, the complexity and length of the procedure and the limited scope of the injunction procedure.22 The question as to whether a Polish qualified entity could bring an action arising from an intra-EU infringement before the Polish courts is thus also relevant. As pointed by the European Commission this second scenario of ‘cross-border case’, when the trader is originating from Member State B and its activities directed to consumers from Member State A, but contrary to what the drafters of the Directive had in mind, a lawsuit is brought by a qualified entity in Member State A before a court in Member State A, is even more common.23 Here again, the response would be ultimately given by Brussels I Regulation (recast) or on the contrary, because of the limits of its material scope by national private international rules. As to CPC Regulation, it is precisely intended to deal inter alia with the difficulties faced by a national body (“qualified entities” under Directive on injunctions) trying to bring an injunction directly in another Member State.24 The Regulation establishes a network of public authorities responsible for protecting consumers and harmonises, to a certain extent, the investigative and enforcement powers of these authorities. Under Article 4 of the Regulation, the competent authorities may exercise such (investigative and enforcement) powers in conformity with national law either: (a) directly under their own authority or under the supervision of the judicial authorities; or (b) by application to courts competent to grant the necessary decision, including, where appropriate, by appeal, if the application to grant the necessary decision is not successful.25 Thanks to the mutual assistance mechanisms created by this Regulation, a member public authority may, at the request of a public authority in another Member State, bring an injunc20

21

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Directive 2009 / 22 / EC, Art. 4 para. 1 in fine; Marie-Laure Niboyet, L’harmonisation européenne en matière d’actions en cessation transfrontières, un exemple concluant d’intervention du droit communautaire dans les relations de droit international privé , Gazette du Palais, Recueil Mars-Avril, [2000], p. 397. European Commission, COM (2008) 756 final, para. 13; European Commission, COM (2012) 635 final, para. 2.5. European Commission, COM (2008) 756 final, para. 17. European Commission, COM (2012) 635 fi nal, para. 2.5. European Commission, COM (2008) 756 final, para. 28 to 30. Regulation (EC) No 2006 / 2004 Art. 4 para 3 and 4.

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tion in its own jurisdiction to stop unlawful practices against consumers from the Member States of the requesting authority.26 The 2008 Commission’s report on the Injunctions Directive, indicates that the CPC Regulation had an impact on the use of injunctions, in particular experience showed that, since the entry into force of the CPC Regulation, most public authorities have opted to use its mutual assistance mechanisms when combating an illegal practice by a trader in another Member State, instead of directly seeking an injunction before the courts of that Member State, as the first possibility could be less costly for them. The second Commission’s report on this Directive confirms this trend.27 But the Regulation is unclear on whether the request for an action before the courts should be addressed only to the public authority of the Member States where the responsible trader is established, or either of the Member States where the act or omission originated took place and of the Member States where evidence or assets pertaining to the act or omission are to be found.28 Once more the important question of whether the competent authority can bring an action before its own courts or eventually before the court of another Member States under the relevant rules on international jurisdiction will ultimately depend on the rules of the Brussels I Regulation (recast) or on the national private international rules. This brings us back to our main question: What about the material scope of the Brussels I Regulation (recast) and collective redress initiated by a public body? One may say: Given the wording of the Article 1 of the Brussels I Regulation (recast) the term “exercise of the State authority” should be decisive, even if this term refers to public body acting as a defendant. Taken into account that the Member States that have designated, under Injunctions Directive, several qualified entities normally include a mix of public authorities responsible for consumer affairs at local, regional and national level, plus the most representative consumer organisations,29 the lack of

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Regulation (EC) No 2006 / 2004 Art. 8. European Commission, COM (2012) 635 final, para. 2.6. Betlem, Gerrit, European Business Law Review, 2007, pp. 688-690 and 694-696. Under Article “3(b) “intra-Community infringement” means any act or omission contrary to the laws that protect consumers’ interests, as defined in (a), that harms, or is likely to harm, the collective interests of consumers residing in a Member State or Member States other than the Member State where the act or omission originated or took place; or where the responsible seller or supplier is established; or where evidence or assets pertaining to the act or omission are to be found”. European Commission, COM (2012) 635 final, para. 2.4.

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legal certainty appears: are the public authorities responsible for consumer affairs at local or regional level exercising “State authority”? One may say as well: No matter if the plaintiff is the person governed by the private law or the public body, the subject-matter of the action would be exactly the same! Independently of the legal character of the person acting before the court and independently of the national or local level of its activities, the subject-matter of the proceedings – the relationship concerned by proceedings - is not a manifestation of the exercise of public powers [State authority]. Moreover, the second criterion used to identify the civil and commercial matter - namely the nature of the relationship between the parties to the action - may be regarded as irrelevant since by definition, in an action for injunctive collective redress, unless under Injunctions Directive, the parties to the action are not the parties to the relationship concerned by the dispute. On the contrary, it may be argued that the action brought by the public body before the court is a mix of public and private enforcement, so the context would be completely different. As a consequence, the criterion of the subject-matter of the proceedings should not have the same effect. It could also be said that the answer depends on whether public bodies are the only entities having the status to sue in this type of proceedings, or whether, on the contrary, private, natural or legal persons could also bring this type of action. This is because the basis and the detailed rules governing the bringing of the action may be an indication that determines the scope of application of Brussels I Regulation [recast] (civil and commercial matter).30 As the case may be, the use of private enforcement for public purposes, including for the protection of the private interests of consumers taken as an entire class of society, as well as the use of public bodies for private purposes such as actions before the courts seeking compensation for consumers, raise an issue of a more general nature. Is the “civil and commercial” matter as a parameter, insofar as it delimits the material scope of the Brussels I Regulation (recast), suited to the reality of contemporary legal relationships? This is a question raised by Horatia Muir-Watt in one of her publications.31

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ECJ [2002] (C-271 / 00 Gemeente Steenbergen v. Luc Baten), para. 31; ECJ [2003] (C-266 / 01 Préservatrice foncière TIARD v. Staat der Nederlanden), para. 23; ECJ [2004] (C-265 / 02, Frahuil v. Assitalia Spa), para. 20. Horatia Muir-Watt, Les actes iure imperii et le règlement Bruxelles 1, A propos de l’affaire Lechouritou, Revue critique de droit international privé [2008], p. 70.

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3. The scope of Section 4 of the Brussels I Regulation: collective interest of group of consumers v. the individual consumers’ interests According to Henkel, the consumer protection rules on jurisdiction provided for in Section 4 of the Brussels I Regulation [recast] are not applicable to injunctive collective redress initiated by consumer associations. This is because the consumers protected are not themselves party to the proceedings. But what about compensatory collective redress initiated by the consumers themselves within a class (group) action? Do they need the protection of Section 4 of Brussels I? Is Brussels I designed to afford them such protection in accordance with its objectives of legal certainty? Especially given the fact that the main protective connecting factor used by those rules is based on the place of domicile of only one consumer who is party to the proceedings. This problem concerns the legal certainty for business as well. According to Article 17 point (1) of Brussels I (recast), jurisdiction is determined by Section 4, under certain conditions,32 in matters relating to a contract concluded by a person, the consumer, for a purpose which can be regarded as being outside his trade or profession. The special system established by Section 4 of Brussels I [recast] is motivated by the concern to protect the consumer as the party deemed to be economically weaker and less experienced in legal matters than the other party to the contract.33 Therefore the consumer must not be discouraged from suing by being compelled to bring his action before the courts in the [Member State] in which the other party to the contract is domiciled. However, Brussels I protects the consumer expressis verbis only in as much as he personally is the plaintiff or defendant in proceedings.34 That protection does not extend to proceedings to which he is not a party. According to the Shearson Lehman Hutton case, a plaintiff who is acting in pursuance of his trade or professional activity and who is not, therefore, himself a consumer party to the contract may not enjoy the benefit of the rules of special jurisdiction laid down by Section 4 of the Brussels I Regula32

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Małgorzata Posnow-Wurm: La protection des consommateurs dans le droit international privé européen suite à l’arrêt de la Cour de justice de l’Union européenne du 7 décembre 2010: la notion d’«activité dirigée», Revue de droit international privé, [2011], No1, pp. 162-181. ECJ [1993] (C-89 / 91, Shearson Lehman Hutton Inc. V TVB mbH ), para. 18; ECJ [2005] (C-464 / 01, Jonathan Gruber v Bay Wa AG), para. 34; ECJ [2005] (C-27 / 02 Petra Engler v Janus Versand GmbH), para. 39. Opinon of Advocate General Darmon delivered on 27 October 1992, in C-89 / 91, para. 30.

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tion [recast].35 In Henkel, the Court holds that this interpretation must also apply in respect of a consumer protection organisation which has brought an action as an association on behalf of consumers.36 As a consequence, the case-law draws a clear distinction between the notion of the consumer as a party to the proceedings who merits the special protection afforded by private international law, and the notion of the consumer as a member of a social group who merits the special protection afforded by substantive law, but not systematically the protection arising from the fact that his rights are subject-matter of the proceedings in the cross-border context. According to Henkel, the consumer does not need the protection afforded under Section 4 of Brussels I [recast] since he did not initiate the injunctive collective redress or rather because the subject-matter of the action is the collective interest of consumers? Could the logic of the Court be influenced by the fact that the subjectmatter of compensatory collective redress is also the individual rights of the consumers for the compensation of their individual damages? Would the response of the Court be the same in the case of a class (group) action for compensatory redress? The idea at the very heart of collective redress is to strengthen the procedural position of the members of a group by allowing them to join more than one individual action in a single class (group) action. If we were to interpret Brussels I (recast) literally, taking the concept of “consumer” – party to the court action – in the singular, the rules would not apply either. This begs the question of how many consumers there need to be for there to be an imbalance of power before the courts between them and the defendant(s). Are a dozen consumers enough? Do there need to be one hundred or one thousand? Is this a question of the number or rather of the individual or collective consumer interests which are at stake? Rather than concentrating on the number of victims or the type of interests defended in proceedings might it not be better to consider the extent of the damages suffered or the financial strength of the defendant(s)? Should not the complexity of the legal issues involved in the case or in collecting evidence also be taken into consideration?37 However, making the application of protective measures conditional on such circumstances does not seem reconcilable with the aim of predict-

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ECJ [1993] (C-89 / 91, Shearson Lehman Hutton Inc. V TVB mbH), para. 23. ECJ [2002] (C-167 / 100, Verein für Konsumenteninformation v Karl Heinz Henkel), para. 33. Jean Calais-Auloy, Les délits à grande échelle en droit civil français, Revue internationale de droit comparé, Vol. 46 N°2 [1994], p. 380.

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ability of the rules referred to under Brussels I (recast), which is an integral part of legal certainty. If the consumers do need such protection, is there any difficulty when applying the protective rules of Brussels I (recast) to a group action? Especially given the fact that the connecting factor used by those rules is based on the place of domicile of only one consumer who is party to the proceedings. If it were possible for more than one consumer joining together in one single court action to benefit from the protective rules of Section 4 of Brussels I (recast) , whose domicile should be taken into account in order to identify the competent jurisdiction? Henkel only concerns Austrian consumers. But it is easily conceivable that consumers domiciled in more than one Member State, for instance in border regions, might join forces in order to sue a trader active in all such regions. Could the consumers concerned choose one of their domiciles as a connecting factor for jurisdiction over the dispute concerning the legal relations linking the defendant(s) to all the members of the group? If such a choice were possible, should it be restricted by objective criteria related to the sound administration of justice? A solution whereby the domicile of each consumer in the group could constitute the connecting factor for jurisdiction could seem irreconcilable with the aim of Brussels I (recast) to minimise the number of fora competent for the same dispute. Moreover, a practical obstacle arises in cases joining consumers domiciled in different Member States of the Union or even in the same Member State, since Article 18 (1) of Brussels I (recast) provides that “the courts for the place where the consumer is domiciled” have jurisdiction. The same difficulty arises in the framework of a representative action. It is the representative person / entity that has the status to sue, but the proceedings are supposed to concern several, hundreds or even thousands of similar contractual relationships between consumers and business!

4. The scope of points (1) and (2) of Article 7 of the Brussels I Regulation: the case of class (group) actions: consumers as both the party to the action and the party to the relationship concerned by the proceedings According to the Court, injunctive collective redress is a matter relating to tort, delict or quasi-delict within the meaning of [Article 7, point (2) of the Brussels I Regulation (recast)]. The main argument of this assumption is that the consumer protection organisation that initiates the proceedings and the trader are in no way linked by any contractual relationship. The question remains: would the decision of the Court be the same in the case 270

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of a class (group) action where the consumers are plaintiffs and at the same time the parties to the contractual relationships that form the subject-matter of the proceedings, and in addition, where their individual interests are defended? Or on the contrary, the mere fact that the unlawful practice has harmful consequences for consumers as an entire social group, and not only for their individual interests, is the sufficient criteria which define the disputes arising from those practices as falling under point (2) of Article 7 of the Brussels I Regulation (recast)? 38 The final question is not covered at all by Henkel, but is of the greatest importance: Is there any difficulty when applying points (1) or (2) of Article 7 to the different forms of collective redress in the field of consumer pro38

Taking into acount ECJ [2002] (C-167 / 00, Verein für Konsumenteninformation v. Karl Heinz Henkel), para. 39 to 43, as follows: “39 Admittedly, it is likely that the trader has already entered into contracts with a number of consumers. However, whether the court action is subsequent to a contract already concluded between the trader and a consumer or that action is purely preventive in nature and its sole aim is to prevent the occurrence of future damage, the consumer protection organisation which brought that action is never itself a party to the contract. The legal basis for its action is a right conferred by statute for the purpose of preventing the use of terms which the legislature considers to be unlawful in dealings between a professional and a private final consumer. 40 In those circumstances, an action such as that brought in the main proceedings cannot be regarded as a matter relating to a contract within the meaning of Article 5(1) of the Brussels Convention. 41 By contrast, such an action meets all the criteria established by the Court in the case-law referred to in paragraph 36 of this judgment inasmuch as, fi rst, it does not concern matters relating to a contract within the meaning of Article 5(1) of the Brussels Convention and, second, it seeks to establish the liability of the defendant in tort, delict or quasi-delict, in the present case in respect of the trader’s non-contractual obligation to refrain in his dealings with consumers from certain behaviour deemed unacceptable by the legislature. 42 The concept of harmful event within the meaning of Article 5(3) of the Brussels Convention is broad in scope (…) so that, with regard to consumer protection, it covers not only situations where an individual has personally sustained damage but also, in particular, the undermining of legal stability by the use of unfair terms which it is the task of associations such as the VKI to prevent. 43 Furthermore that is the only interpretation consistent with the purpose of Article 7 of Directive 93 / 13. Accordingly, the efficacy of the actions under that provision to prevent the continued use of unlawful terms would be considerably diminished if those actions could be brought only in the State where the trader is domiciled.”

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tection? Especially, since those provisions use as a connecting factor only one element of only one relationship between two private persons. Which element of which relationship that is the subject-matter of the collective redress should be taken into account when looking for competent courts? Be it points (1) or (2) of Article 7 or Section 4 of the Regulation, their application to collective redress raises the extremely difficult question of which of the individual legal relationships concerned by the collective redress should be used in order to determine the competent jurisdiction. Is it possible to choose one of them while at the same time satisfying the objectives of both collective redress and Brussels I? On the other hand, if we consider all courts designated by the connecting factors that refer to all of the relationships to be competent, there would be an unpredictable explosion in the number of the competent jurisdictions. The difficulty of choosing one out of all the legal relationships that form the subject-matter of the collective redress action, while applying consumer protective rules, is also at the root of problems of jurisdiction in cases relating to tort and contract. Not only do we have to contend with the fact that these rules are constructed in a manner ill-suited to the specific characteristics peculiar to the concept of collective injury, but there is also the fact that the connecting factors for jurisdiction provided for in matters relating to tort and contract always link to only one single element of the legal relationship under judicial review. Inevitably, the efficiency of such criteria suffers when a single court action involves multiple legal relationships. Moreover, in such cases the various legal relationships are often characterised by a whole range of elements and arise in a diversity of places. This is the case for the criterion of the place in which the harmful event occurred, the criterion of the place in which the damage occurred, and the criterion of the place of performance of the obligation on which the claim is founded. Thus an attempt to apply the rules of jurisdiction in matters of tort to cases of compensatory collective redress in accordance with the case-law of the Court of Justice leads either:- to what, given the ratio legis of Article 7, point (2) of Brussels I (recast), is a difficult search for one of the events that caused the collective injury so as to identify the most appropriate court to rule on the compensatory collective action, or – to an excessive multiplication of competent fora designated according to the criterion of the places in which the various damages constituting the mass injury occurred. This would result because the courts designated using this method would have jurisdiction only for the damage that arose on the territory under their jurisdiction, and not for the entire collective injury.39

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ECJ [1976] ( 21-76 Bier Mines de Potasse d’Alsace’), Holdings; ECJ [1995] (C-68 / 93 Shevill and Others, Holdings.

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Such a multiplication of fora would quite simply defeat the purpose of an action for collective redress. In other words, applying the protective rules on jurisdiction or the rules on jurisdiction in matters relating to tort and contract to compensatory collective redress would run counter to the aim of predictability of competent fora and the concentration of a dispute before one single competent court Consequently, the only forum provided for in the Brussels I Regulation (recast) which is not, in the case of collective redress, irreconcilable with the aims of the Regulation is that of the defendant’s domicile. Pursuant to Brussels I as it currently stands, there is no doubt that all forms of collective redress claims could be brought in a State in which the presumed perpetrator of the unlawful practice is domiciled. The situation becomes more complicated when there is more than one presumed perpetrator of the mass injury. The Court of Justice’s current caselaw relating to Article [8 point 1 of Brussels I Regulation recast]40 leaves some ambiguities as to allow for claims against more than one defendant to be joined before one single forum in accordance with the criteria used for joining claims within collective compensation procedures.41 However, the case law may be reviewed. 40

41

Previously Article 6, point (1) of the Regulation (EC) No 44 / 2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, O.J 2001. L 12 / 1. If we consider that a relevant criterion to joint the individual actions into a single collective redress action is a circumstance that the individuals have been harmed by the same or similar illegal practice of a single or several traders, the conditions of Article 6 point 1 of Brussels I Regulation may be seen as not met. Th is, in light of the ECJ judgment according to which “Article 6(1) of [Brussels I Regulation] must be interpreted as meaning that it does not apply in European patent infringement proceedings involving a number of companies established in various Contracting States in respect of acts committed in one or more of those States even where those companies, which belong to the same group, may have acted in an identical or similar manner in accordance with a common policy elaborated by one of them.” : ECJ [2006] (C-539 / 03 Roche Nederland and Others). However, the Court seems to slightly nuance its position in its recent judgment according to which “ Article 6(1) of [Brussels I regulation] must be interpreted as meaning that a situation where two or more companies established in different Member States, in proceedings pending before a court of one of those Member States, are each separately accused of committing an infringement of the same national part of a European patent which is in force in yet another Member State by virtue of their performance of reserved actions with regard to the same product, is capable of leading to ‘irreconcilable judgments’ resulting from separate proceedings as referred to in that provision. It

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The adjustment of the Brussels I Regulation (recast) to collective redress could rely on the possibility of consolidation of individual consumers’ claims into a single action, both in the framework of class (group) action as well as in the framework of representative action. Multiple claims for damages of a number of consumers who have been harmed by the same or similar illegal practice of a single or several traders could be seen as related. Such related claims could be initially brought as a single action (group or representative one) before the forum of the defendant’s domicile. As have been underlined the forum of the defendant’s domicile seems to be the only one provided for in the Brussels I Regulation (recast) which fulfils the condition if being highly predictable.

5. Is designing of the new rule on jurisdiction adapted to collective redress in the field of consumer protection possible? Many more outstanding questions remain. Firstly, does the forum of the defendant’s domicile satisfy the needs of European framework of collective redress in the field of consumer protection, while at the same time achieving the aims of European Union law, namely access to justice and the sound administration of justice? The conclusion that the forum of the defendant’s domicile is sufficient as a uniform, EU-wide conflict rule on jurisdiction for collective redress in consumer protection field seems to undermine the very reason for existence of Brussels I, with its special jurisdictions. Such a conclusion would mean that there is no point in seeking the most appropriate jurisdiction for a dispute (which is, after all, the underlying reason for the wording in Sections 2 to 6 of the Regulation) for the purposes of EU law in the context of collective redress. The opposite philosophy would oblige to search the forum which is most closely connected with the concrete collective redress action. The European Parliament stresses in its Resolution of 2 February 2012 that any European legally binding horizontal framework must cover the core aspects of obtaining damages collectively “(…) in particular, procedural and international private law issues must apply to collective actions in general irrespective of the sector concerned, while [only] a limited number of rules relevant to consumer protection or competition law (…), could be laid down, for instance, in separate articles or chapters of the horizontal instruis for the referring court to assess whether such a risk exists, taking into account all the relevant information in the fi le.”: ECJ [2012] (C-616 / 10, Solvay SA v Honeywell Fluorine Products Europe BV, Honeywell Belgium NV, Honeywell Europe NV).

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ment itself or in separate legal instruments in parallel or subsequent to the adoption of the horizontal instrument”. 42 Still, could it be possible to devise a new rule on jurisdiction that would cater not only for the specificities of mass injury while taking account of the great diversity of the kind of individual damages that might make up its constituent parts, but also for the characteristics of collective redress, irrespectively of the sector concerned? Such a rule would also have to be in keeping with the aims of effective access to justice, legal certainty and the sound administration of justice in cross-border disputes. A potential avenue to explore may be found in the Rome II Regulation.43 Should the rules of jurisdiction be specified depending on the nature of tort, delict or quasi-delict? On the contrary, the new rule on jurisdiction for all collective redress action could be inspired by only one Rome II Regulation, notably its art. 6 point 3 relating to the law applicable to a non-contractual obligation arising out of a restriction of competition.44 The jurisdiction of the market which is most affected by the alleged illegal practice (s) could be seen as allowing a close connection between the court and the dispute. Another avenue to explore may be found in reasoning of the Court of Justice in its relatively recent judgment in the Martinez case,45 and in the proposal of the brand new rule on jurisdiction presented in the conclusions 42

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European Parliament Resolution (2011 / 2089(INI)) ‘Towards a Coherent European Approach to Collective Redress’ (2011 / 2089(INI)), para 17. Regulation (EC) No 864 / 2007 of the European Parliament and of the Council of 11 July 2007 on the law applicable to non-contractual obligations (Rome II), O.J.[2007] L L 199 / 40. According to its Art. 3. (a) “The law applicable to a non-contractual obligation arising out of a restriction of competition shall be the law of the country where the market is, or is likely to be, affected.” According to its art; 3 (b) “When the market is, or is likely to be, affected in more than one country, the person seeking compensation for damage who sues in the court of the domicile of the defendant, may instead choose to base his or her claim on the law of the court seised, provided that the market in that Member State is amongst those directly and substantially affected by the restriction of competition out of which the non-contractual obligation on which the claim is based arises; where the claimant sues, in accordance with the applicable rules on jurisdiction, more than one defendant in that court, he or she can only choose to base his or her claim on the law of that court if the restriction of competition on which the claim against each of these defendants relies directly and substantially affects also the market in the Member State of that court.” ECJ [ 2011] (Joined Cases C- 509 / 09 and C-161 / 10, eDate Advertising GmbH v X and Olivier Martinez, Robert Martinez v MGN Limited).

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of the Advocate-General in that case. Indeed, why not consider a jurisdiction of the “centre of gravity of the dispute”?46 Would it be possible to empower the national judges with such broad discretion in order to find the most appropriate forum for a cross-border action for collective redress? In the consumer protection field the main characteristics of judicial proceedings, that have been guided this paper, such as: the injunctive or compensatory effect of the proceedings, the legal character of the person having the status to sue (person governed by the private law or public body), and finally the nature of interests (“collective interests” and “individual interests”) defended in the proceedings seem to be important indicators in seeking such “centre of gravity of the dispute”. Those and others questions described in this paper, searching for the balance between different interest at stake (public, collective and individual; business’ and consumers’) should definitely be taken into consideration in the future thinking on the collective redress, consumer protection and Brussels I Regulation.

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Opinion of Advocate General CRUZ VILLALÓN delivered on 29 March 2011 in Cases C- 509 / 09 and C-161 / 10, para. 55 to 65.

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Transnational Securities Fraud Class Actions: Looking Towards Europe? Natalia A. Kapetanaki 1. Introduction The regime of class actions has proved important in different sectors of economic life; given the collective action problem shareholders face in publicly held companies, it has also been applied in the context of securities litigation.1 ‘Collective action problem’ can be defined as the lack of incentives to file individual actions, when small amounts are invested from a large number of people. In the context of a class action, on the one hand, the class covers the costs of litigation but on the other hand, receives its benefits. Therefore, in the case of a securities fraud, the mechanism of a class action brought by a class of shareholders against the company successfully replaces separate individual actions.2 The basis for a securities fraud class action is the non-disclosure (misrepresentation or omission) of information, in appropriate time, by a publicly held company towards its shareholders. As BOOTH explains, there are two possible cases. If the information hidden is positive for the company, shareholders that sold during the fraud period suffer damages. On the contrary, if the information hidden is negative, damages are caused to those who bought during the same period.3

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B.T. Fitzpatrick, «An Empirical Study of Class Action Settlements and Their Fee Awards», Journal of Empirical Legal Studies, 2010, Vol. 7, p. 811, pp. 818; M.G. Warren, «The U.S. Securities Fraud Class Action: An Unlikely Export to the European Union», Brooklyn Journal of International Law, 2012, Vol. 37, p. 1075, pp. 10831085. S.J. Choi, «The Evidence on Securities Class Actions», Public Law and Legal Theory Research Paper Series: University of California at Berkeley School of Law, 2004, p. 1, pp. 1. R.A. Booth, «Who Should Recover What For Securities Fraud», Legal Studies Research Paper: University of Maryland School of Law, 2005, p. 1, pp. 4.

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Under the American legal framework, and particularly the Securities Exchange Act of 1934 (hereinafter ‘the Exchange Act’),4 investors dispose the right to sue other actors who have defrauded them. Section 10(b) is the central antifraud provision of the Exchange Act and Rule 10b-5 is the rule that the Securities and Exchange Commission (hereinafter ‘the SEC’) promulgated under its authority granted by the Section 10(b). According to Rule 10(b)-5,5 entitled «Employment of Manipulative and Deceptive Practices», it is prohibited, directly or indirectly, «(a) to employ any device, scheme, or artifice to defraud, (b) to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or (c) to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security». Moreover, the Private Securities Litigation Reform Act (PSLRA)6 establishes the procedural legal framework of securities fraud class actions brought in front of the U.S. federal courts.7 The PSLRA did not change the certification requirements established by Rule 23(a) of the Federal Rules of Civil Procedure.8 Consequently, firstly, a securities claim should meet the requirements of numerosity, commonality, typicality, and adequacy9 and secondly, plaintiffs must show that the claim falls in one of the Rule 23(b)

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Securities Exchange Act of 1934, Pub. L 73-291, 48 Stat. 881, enacted 6 June 1934, codified at 15 U.S.C § 78 et seq. Rule 10b-5, adopted pursuant to Section 10(b) of the Securities Exchange Act of 1934, 17 C.F.R. § 240.10b-5 (2007). Private Securities Litigation Reform Act, Pub. L. 104-67, 15 U.S.C. § 78u-4 (2011). H.L. Buxbaum, «Multinational Class Actions Under Federal Securities Law: Managing Jurisdictional Conflict», Columbia Journal of Transnational Law, 2007, Vol. 46, p. 14, pp. 26. Federal Rules of Civil Procedure, adopted by order of the Supreme Court on 20 December 1937 and enacted on 16 September 1938. They were modified several times, last modification on 1 December 2010. Rule 23(a) of the Federal Rules of Civil Procedure reads as follows: «(a) Prerequisites. One or more members of a class may sue or be sued as representative parties on behalf of all members only if: (1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class.»

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categories.10 However, compared to the traditional procedure, there is a change regarding the selection of the lead plaintiff. As the analysis that follows shows, the extraterritorial application of Section 10(b) of the Exchange Act resulted to the flourishing of transnational securities class actions in the United States during the last decades. However, recently, tides have changed. This pp.r sets out to explain the declining dominance of U.S. courts regarding transnational securities class actions and the rising of new attractive jurisdictions, such as the Dutch courts, for this type of class actions. The analysis starts by the evolution of the treatment of these particular class actions in the American legal context, until the point that the United States became the most attractive forum of preference for such actions. Then, it focuses on the recent Morrison v. National Australia Bank Ltd case (hereinafter ‘the Morrison case’).11 This case brought a fundamental change to the American regime and a limitation to the American dominance. Lastly, the combination of this limitation with the recent evolution on class action regimes in European countries but also

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According to Rule 23(b), the categories of class actions are the following: «(b) Types of Class Actions. A class action may be maintained if Rule 23(a) is satisfied and if: (1) prosecuting separate actions by or against individual class members would create a risk of: (A) inconsistent or varying adjudications with respect to individual class members that would establish incompatible standards of conduct for the party opposing the class; or (B) adjudications with respect to individual class members that, as a practical matter, would be dispositive of the interests of the other members not parties to the individual adjudications or would substantially impair or impede their ability to protect their interests; (2) the party opposing the class has acted or refused to act on grounds that apply generally to the class, so that fi nal injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole; or (3) the court finds that the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy. The matters pertinent to these fi ndings include: (A) the class members’ interests in individually controlling the prosecution or defense of separate actions; (B) the extent and nature of any litigation concerning the controversy already begun by or against class members; (C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; and (D) the likely difficulties in managing a class action.» Morrison v. National Australia Bank, 130 S. Ct. 2869, 2875–76, 561 U.S. (2010) (hereinafter Morrison).

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at the level of European Union could create a new global picture for transnational securities fraud class actions.

2. The Pre-Morrison Era of Securities Fraud Class Actions Blossom in the United States In the pre-Morrison era, in the particular case of transnational securities fraud class actions brought in front of the U.S. courts under Section 10(b) of the Exchange Act and Rule 10(b)-5, the issues of subject-matter jurisdiction and extraterritorial application of the U.S. securities laws presented a high level of interdependence.12 In fact, Section 27 of the Exchange Act established the exclusive jurisdiction of U.S. courts over any type of action at law brought to enforce any liability or duty created by the Exchange Act or the rules and regulations thereunder. Put simply, when there was an alleged violation of Section 10(b), federal courts enjoyed exclusive adjudicative jurisdiction13 and consequently, the question of subject-matter jurisdiction depended on the interpretation of the substantial scope of Section 10(b), interpreted by Rule 10(b)-5. Nevertheless, these provisions provided no explicit exclusion regarding foreign transactions. This silence was considered as revealing of the intention of the U.S. Congress to establish extraterritorial applicability of U.S. securities laws’ antifraud provisions in certain cases.14 So to determine these cases, the U.S. courts, and specifically the Court of Appeals for Second Circuit (hereinafter ‘the Second Circuit’), which is the circuit with the longest tradition on securities law cases, developed two alternative tests. Firstly, according to the so-called ‘effects’ test, U.S. provisions were applied even for an isolated foreign transaction, as long as this transaction could potentially affect the interests of U.S. investors.15 Establishing this test in Schoenbaum v. Firstbrook, the Second Circuit stated that «we believe that Congress intended the Exchange Act to have extraterritorial application in order to protect domestic investors who have purchased foreign securities 12

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M. Ventoruzzo, «Like Moths to a Flame? International Securities Litigation After Morrison: Correcting the Supreme Court’s “Transactional Test”», Virginia Journal of International Law, 2012, Vol. 52, p. 405, pp. 415, where the author mentions that «A starting point for analyzing transnational securities litigation is to understand that the subject-matter jurisdiction of federal courts and the substantive coverage of Section 10(b) (and Rule 10b-5) are interrelated, if not perfectly overlapping». Id., pp. 416, 417. H.L. Buxbaum, loc.cit. note 7, pp. 19. Schoenbaum v. Firstbrook, 405 F.2d 200 (2d Cir. 1968).

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on American exchanges and to protect the domestic securities market from the effects of improper foreign transactions in American securities.»16 Secondly, according to the ‘conduct’ test, U.S. provisions were applied when the fraudulent conduct of a foreigner, inducing U.S. investors to buy foreign securities, took place in the United States.17 Establishing this test in Leasco Data Processing Equip. Corp. v. Maxwell, the Second Circuit held that «still we must ask ourselves whether, if Congress had thought about the point, it would not have wished to protect an American investor if a foreigner comes to the United States and fraudulently induces him to purchase foreign securities abroad - a purpose which its words can fairly be held to embrace.»18 In this case, the decisive element for establishing jurisdiction is the damage to an U.S. investor.19 This extraterritorial application based on the ‘conduct’ test was further extended to investors not based in the United States in the so-called foreign cubed or f-cubed (F3) actions. A F3 action is «a claim under the U.S. securities laws brought by foreign plaintiffs who purchased shares of a foreign issuer on a foreign exchange».20 In IIT v. Vencap, Ltd., the Second Circuit clarified that «We do not think Congress intended to allow the United States to be used as a base for manufacturing fraudulent security devices for export, even when these are peddled only to foreigners.»21 In Itoba Ltd. v. Lep Group PLC,22 the Court went even further by combining the two tests and by rejecting their strict separate character as such: «There is no requirement that these two tests be applied separately and distinctly from each other. Indeed, an admixture or combination of the two often gives a better picture of whether there is sufficient United States involvement to justify the exercise of jurisdiction by an American court.».23

16 17 18 19 20

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Id., § 12. Leasco Data Processing Equip. Corp. v. Maxwell, 468 F.2d 1326 (2d Cir. 1972). Id., § 22. M. Ventoruzzo, loc.cit. note 12, pp. 419. L.J. Silbermann, «Morrison v. National Australia Bank: Implications for Global Securities Class Actions», New York University School of Law, Public Law & Legal Theory Research Paper Series, 2011, Working Paper N°11-41, pp.2; H.L. Buxbaum, loc.cit. note 7, pp. 17; G.L. Gassmann, «Foreign Buyers, Foreign Issuers, Foreign Exchanges: The Current State of Foreign-Cubed U.S. Securities Litigation», The Brief, 2012, Vol. 41, N° 2, p. 1, pp. 2. IIT v. Vencap, Ltd., 519 F.2d 1001 (1975), § 39. Itoba Ltd. v. Lep Group PLC, 54 F. 3d 118, 122 (1995). Id., § 15.

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Other circuits developed similar tests.24 Despite the different standards adopted, the general practice has been to accept the extraterritorial application of Section 10(b).25 It could be concluded that such a practice reinforced the active participation of U.S. courts in the forum competition, since it was providing a forum even for F3 claims (foreign plaintiffs against foreign securities issuers for purchases or sales that took place outside the United States).26 Additionally, U.S. courts were considered attractive due to features of the U.S. litigation — such as contingency fees, the discovery mechanism and trial by jury —which do not exist in other national regimes.27

3. The Post-Morrison Era of Securities Fraud Class Actions Decline in the United States In 2010, the U.S. Supreme Court granted a writ of certiorari and considered reviewing the Morrison case, in the context of which the question to be answered was whether Section 10(b) of the Securities Exchange Act of 1934 provides a cause of action to foreign plaintiffs suing foreign and American defendants for misconduct in connection with securities traded on foreign exchanges. The Supreme Court was for the first time confronted to the issue of the extraterritorial application of Rule 10(b)-5 in a case of an F3 claim. It should be noted that the U.S. Supreme Court made clear from the very start of its opinion that the territorial scope of a federal law is not a question of 24

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Most of the circuits adopted a lax interpretation of Section 10(b) of the Exchange Act and therefore accepted its extraterritorial application. Still, in Zoelsch v. Anderson, 824 F.2d 27, 31 (D.C. Cir. 1987), the Circuit for District of Columbia rejected the extraterritorial application by stating that Congress is concerned with domestic conditions and in order to establish jurisdiction, domestic conduct must be present in all the elements of the cause of action; M. Ventoruzzo, loc.cit. note 12, pp. 420. P. Spender & M. Tarlowski, «Adventures on the Barbary Coast: Morrison and Enforcement in a Globalised Securities Market», Melbourne University Law Review, 2011, Vol. 35, p. 280, pp. 300-301. W.A. Kaal & R.W. Painter, «Forum Competition and Choice of Law Competition in Securities Law After Morrison v. National Australia Bank», Minnesota Law Review, 2012, Vol. 97, p. 132, pp. 136-137. For a thorough analysis of these general and specific features that explain the attraction of foreign plaintiffs by the U.S. Courts, see M. Ventoruzzo, loc.cit. note 12, pp. 410-415. As Ventoruzzo interestingly mentions «The more profound and significant the differences between the home jurisdiction and the United States, the more a foreign plaintiff might fi nd it attractive to sue in the United States.»

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jurisdiction but a question of substantive law.28 By doing so, the Court took distance from the pre-Morrison era case law. Surprisingly, by rejecting case law of the last four decades, the Supreme Court reversed the decision of the Court of Appeals for the Second Circuit that applied the ‘conduct-effect’ test29 and considered that Section 10b has no extraterritorial application. The extraterritorial application of Section 10(b) was criticized as «unpredictable and inconsistent»30 but also as serving policy goals.31 The imposition on foreign claimants of a court decision that they had no knowledge of was also considered imperialistic and against international comity32 as well as a practice that would inevitably lead (as it already had) to an expansion of securities fraud class action litigation before U.S. courts.33 In its decision, the Supreme Court held that the judicial-speculationmade-law over ‘what the Congress would have wished’ violated the principle of American law that «legislation of Congress, unless a contrary intent appears, is meant to apply only within the territorial jurisdiction of the United States».34 The silence of the Congress should be understood as a presumption of non-extraterritorial application of Section 10(b), as Congress legislates only for domestic issues. Consequently, in the absence of an affirmative indication in the Exchange Act that Section 10(b) does, indeed, 28 29 30

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Morrison, supra note 11, pp. 2877-2878. Morrison v. National Australia Bank Ltd., 547 F.3d 167 (2d Cir. 2008). Morrison, supra note 11, pp. 11, (citing S.J. Choi & L.J. Silberman, «Transnational Litigation and Global Securities Class-Action Lawsuits», Wisconsin Law Revue, 2009 p. 465, pp. 467–468; K.Y. Chang, «Multinational Enforcement of U. S. Securities Laws: The Need for the Clear and Restrained Scope of Extraterritorial SubjectMatter Jurisdiction, Fordham Journal of Corporate & Financial Law, 2004, Vol. 9, p. 89, pp. 106-108, 115-116). Id., pp. 2880. (citing SEC v. Kasser, 548 F. 2d 109, 116, where it is mentioned that the rationale behind the extraterritorial application was «to prevent the United States from becoming a base of operations for fraudulent conduct; to promote reciprocal enforcement by other countries where fraud is directed toward the United States; and to maintain high standards of conduct in securities transactions within the United States».) For the policy goals, see P. Spender & M. Tarlowski, loc.cit. note 25, pp. 291-292. P. Spender & M. Tarlowski, loc.cit. note 25, pp. 292-293; M. Palmisciano, «Going Dutch: The Effects of Domestic Restriction and Foreign Acceptance of Class Litigation on American Securities Fraud Plaintiffs», Boston College Law Review, 2012, Vol. 53, p.1847, pp. 1861. Morrison, supra note 11, pp. 2886. EEOC v. Arabian American Oil Co., 499 U. S. 244, 248 (1991), pp. 248.

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have extraterritorial application, no extraterritorial application should be accepted. Furthermore, the Court established a new test, the ‘transaction-based test’.35 According to this new test, the important element is not where the deception originated but where the purchases and sales of securities transaction took place. Therefore, the application of Section 10(b) is limited to transactions (purchases or sales) of securities listed on an American stock exchange and to transactions (purchases or sales) of any other securities in the United States. Consequently, the new test does not take into consideration whether the litigants have citizenship or residence in the United States or whether the unlawful conduct or its effects took place within the United States.36 In the same spirit, the Supreme Court rejected the ‘conduct and effects’ test because, as the Court stated «the probability of incompatibility with the applicable laws of other countries is so obvious that if Congress intended such foreign application it would have addressed the subject of conflicts with foreign laws and procedures». Congress reacted directly by introducing Section 929P of the DoddFrank Act37 with respect to actions against transnational securities frauds under Section 10b, which are brought by the SEC and the Department of Justice (hereinafter ‘the DOJ’). Entitled «Extraterritorial Jurisdiction of the Antifraud Provisions of the Federal Securities Laws» ,38 the new provision re-established the ‘conduct and effects’ tests and the necessary «affirmative indication» of extraterritoriality for this type of action. However, as already mentioned, in the Morrison case, the Supreme Court insisted that the question of extraterritorial application of Section 10b is not a question of subject matter jurisdiction but a question of the merits. On that grounds, some 35 36 37

38

Id., at 2888. G.L. Gassman, loc.cit. note 20, pp. 2-3. Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111203, § 929P(b), 124 Stat. 1376 (2010) (codified as amended in sections of 15 U.S.C.). Specifically, Section 929P(b)(2) reads as follows: «Section 27 of the Securities Exchange Act of 1934 (15 U.S.C. 78aa) is amended by adding at the end the following new subsection: (b) Extraterritorial Jurisdiction. – The district courts of the United States and the United States courts of any Territory shall have jurisdiction of an action or proceeding brought or instituted by the Commission or the United States alleging a violation of the antifraud provisions of this title involving (1) conduct within the United States that constitutes significant steps in furtherance of the violation, even if the securities transaction occurs outside the United States and involves only foreign investors; or (2) conduct occurring outside the United States that has a foreseeable substantial effect with in the United States».

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authors39 criticised the title and the terms of the new provision; as Section 929P touches the issue of jurisdiction and not the conduct described by the U.S. securities laws, that is crucial for the determination of the extraterritorial scope of Section 10(b), the Section does not, in fact, overrule the Morrison decision. In any case, despite the unsuccessful phrasing of the provision, it is considered that the intent of the Congress was to reinstate the securities case law of the pre-Morrison era for SEC and DOJ enforcement actions40 and therefore, the new provision of Dodd-Frank Act overrules Morrison with respect to these actions. Notwithstanding this limitation, the Morrison decision still remains important regarding private rights to action under Section 10(b). The transaction-based test is applicable for civil litigation, as in civil litigation context Morrison remains good law. Therefore, plaintiffs (with the exception of the SEC and the DOJ) that sue under Section 10(b) should prove that they purchased or sold securities within the United States. The critiques made on this restrictive interpretation of Section 10(b) focus mainly on the fact that the ‘transaction-based’ test of the Supreme Court reaches further than the mere prohibition of the F3 actions. In fact, the transaction-based test even excludes the so-called F2 or F-squared cases, meaning actions of U.S. investors against foreign issuers for a foreign transaction or actions of foreign investors against U.S. issuers for a foreign transaction,41 or even further actions by US investors against US issuers on a foreign exchange.42 In any case, the application of the new test by lower federal courts has revealed numerous ambiguities left by the Morrison case,43 mainly showing

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J.L. Boehm, «Private Securities Fraud Litigation after Morrison v. National Australia Bank: Reconsidering a Reliance-Based Approach to Extraterritoriality», Harvard International Law Journal, 2012, Vol. 53, p. 501, pp. 513; R.W. Painter, D. Dunham & E. Quackenbos, «When Courts and Congress Don’t Say What They Mean: Initial Reactions to Morrison v. National Australia Bank and the Extraterritorial Jurisdiction Provisions of the Dodd-Frank Act», 2011, Minnesota Journal of International Law, Vol. 1, p. 20, pp. 25. R.W. Painter, D. Dunham & E. Quackenbos, loc.cit. note 39, pp. 24-25. With the exception of the particular type of F-squared (F2) case, where foreign investors sue against foreign issuers for a U.S. transaction, in which case the test is satisfied since the transaction takes place in the United States, J.L. Boehm, loc. cit. note 39, pp. 537; P. Spender & M. Tarlowski, loc.cit. note 25, pp. 312. Pension Fund v Swiss Reinsurance Co (‘Plumbers’) SD NY, No 08 Civ 1958 (JGK), 1 October 2010. For a thorough analysis of the open questions left by the Morrison decision, see W.A. Kaal & R.W. Painter, «The Aftermath of Morrison v. National Australia

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that the interpretation of the ‘location of transaction’ criterion44 established by the new test is not well adapted to the needs of a globalised financial market. There has been already a turn of plaintiffs towards U.S. state courts,45 in order to avoid the application of federal law, but it is generally expected that the overall consequence of the Morrison decision will be a turn of securities class actions’ flow towards other foreign jurisdictions with similar characteristics to the U.S. procedure, for instance the opt-out mechanism.46

4. Is it the Dawn of a European Era for Securities Class Actions? In the context of forum competition, it is considered that the American practice of expansion of jurisdiction will be replaced by the practice of other European countries,47 notably by that of the Netherlands.48 The Dutch Collective Settlement of Mass Claims (Wet Collectieve Afhandeling Massaschade, hereinafter ‘WCAM’)49 establishes a general procedure for collective settlement on an opt-out basis; this general procedure covers also the case of securities fraud.50 Nevertheless, it should always be kept in mind that

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Bank and Elliot Associates v. Porsche», European Company and Financial Law Review, 2011, p. 77-99; J.L. Boehm, loc.cit. note 39, pp. 515-530. W.A. Kaal & R.W. Painter, loc.cit. note 43, pp. 88-91. The case was originally fi led in federal district court the same month the Supreme Court decided Morrison. See Basis Yield Alpha Fund, 37 Misc. 3d 1212(A). The federal court dismissed the suit following Morrison decision, and plaintiffs fi led a parallel action in state court based on state law claims. Basis Yield Alpha Fund v. Goldman Sachs Group, Inc., 37 Misc. 3d 1212(A) (N.Y. Sup. Ct. 2012), Basis Yield Alpha Fund v. Goldman Sachs Group, Inc., No. 652996/2011 (Oct. 19, 2012). P. Spender & M. Tarlowski, loc.cit. note 25, pp. 316, where the author considers Australia as one of these potential jurisdictions; T.J. Monestier, «Is Canada the New Shangri-La of Global Securities Class Actions?», Northwestern Journal of International Law & Business, 2012, Vol. 32, p. 305, pp. 361-363. T.L. Russell, «Exporting Class Actions To The European Union», Boston University International Law Journal, Vol. 28, p. 141, pp. 168-171. M. Palmisciano, loc.cit. note 32, pp. 1875-1877. Dutch Collective Settlement of Mass Claims, of 23 June 2005, Staatsblad 2005, no. 340. At the beginning, WCAM applied exclusively to mass tort claims, but its application was extended to class settlements in securities actions. For details on the application of Dutch Mass Securities Claim Settlements specifically in the context of a security class action, see T. Arons & W.H. van Boom, «Beyond Tulips and

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WCAM does not establish, a procedure for class action litigation, but a settlement mechanism, which constitutes an important difference compared to the U.S. regime. There are two important recent cases that show this new trend, in the context of which the Amsterdam Court of Appeals examined the question of extraterritorial jurisdiction in securities mass claims: the Shell settlement and the Converium settlement. In the Shell case,51 the Court upheld jurisdiction for class members domiciled in the Netherlands under Article 2(1) of EU Regulation 44/2001 (hereinafter ‘the Brussels I Regulation’),52 which reads as follows: «Subject to this Regulation, persons domiciled in a Member State shall, whatever their nationality, be sued in the courts of that Member State.» In relation to class members domiciled outside the Netherlands but within the European Union, the Court confirmed its jurisdiction on Article 6(1) of the Brussels I Regulation, which reads as follows: «A person domiciled in a Member State may also be sued where he is one of a number of defendants, in the courts for the place where any one of them is domiciled, provided the claims are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings». It has to be underlined that class members either domiciled in the Netherlands or in the European Union were considered by the Court as defendants, even though, firstly, the Dutch procedure is not, as Arons and van Boom mention, «an adversarial court proceeding in which a defendant is truly ‘sued’ in the sense of Article 2» 53 and, secondly, if a class action litigation procedure were taking place, the class members would have been plaintiffs.54 Jurisdiction over class members that are domiciled outside the European Union was confirmed under Article 3 of the Dutch Code of Civil Procedure. The Article establishes the international jurisdiction of Dutch courts for the procedures introduced by petition, if the domicile or the

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Cheese: Exporting Mass Securities Claim Settlements from The Netherlands», European Business Law Review, 2010, p. 857, pp. 865-875. Amsterdam Court of Appeals, 29 May 2009, LJN: BI5744. Council Regulation No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, Official Journal L 012, 16/01/2001, p. 0001-0023. T. Arons & W.H. van Boom, loc.cit. note 50, pp. 876; J.J. Kuipers, «Schemes of Arrangement and Voluntary Collective Redress: A Gap in the Brussels Regulation», Journal of Private International Law, 2012, Vol. 8, No 2, p. 225, pp. 235-237. U.S. Chamber Institute for Legal Reform, «Collective Redress in the Netherlands», 6/2/2012, pp. 15.

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habitual residence of any petitioner or any of the class members is in the Netherlands. In the Converium settlement,55 the Amsterdam Court of Appeal confirmed its jurisdiction over a securities fraud class action brought by investors that purchased shares of the Swiss company Converium on the Swiss Exchange or other stock exchanges. In the Converium case, the Court applied Article 2, as some of the class members were domiciled in the Netherlands but also Article 5(1) of Brussels I Regulation and the Lugano Convention,56 which provides that: «A person domiciled in a Member State may, in another Member State, be sued in matters relating to a contract, in the courts for the place of performance of the obligation in question.» In doing so, the Court considered that a settlement agreement of WCAM type is an agreement governed by Dutch law and must be executed in the Netherlands. It should be mentioned that the Court openly acknowledged the need of a new jurisdiction for worldwide settlements, since U.S. Courts have denied jurisdiction in F3 cases. This application of Article 5(1) has been criticised as contrary to the jurisprudence of the Court of Justice of the European Union (hereinafter ‘the CJEU’).57 According to the CJEU, «the phrase “matters relating to a contract”, as used in Article 5(1) of the Convention, is not to be understood as covering a situation in which there is no obligation freely assumed by one party towards another».58 It is quite difficult to consider an obligation under a collective settlement as a ‘contractual’ obligation in the sense of Article 5(1), given that there is no obligation freely assumed by one party towards another. According to Kuipers, even after the binding effect of the settlement following the Court’s decision, «the failure to lodge an opt-out declaration cannot be set on a par with the free assumption of an obligation by a contracting party».59 Furthermore, even if one examines the hypothesis of considering the obligation under a collective settlement as a ‘contractual obligation’ under Article 5(1), it is unlikely that Article 5(1) could allocate 55

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Amsterdam Court of Appeals, November 12, 2010, LJN: BO3908 (interim judgment), and Amsterdam Court of Appeals, January 17, 2012 (final judgment). Lugano Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters of 16 September 1988, 1988 Official Journal L 319, p. 9. J.J. Kuipers, loc.cit. note 53, pp. 234-235; Report Commissioned by the Dutch Ministry of Justice, written by H. van Lith, «The Dutch Collective Settlements Act and Private International Law», pp. 43-45, available at http://ec.europa.eu/ competition/consultations/2011_collective_redress/saw_annex_en.pdf, visited 23 April 2013; U.S. Chamber Institute for Legal Reform, loc.cit. note 54, pp. 15-16. C-26/91 Handte (1992), ECR I-3967, § 15. J.J. Kuipers, loc.cit. note 53, pp. 234-235.

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jurisdiction.60 The reasoning is based on the Besix case,61 where the CJEU ruled that the special jurisdictional of Article 5(1) is not applicable where the place of performance of the obligation in question cannot be determined because it consists in an undertaking not to do something which is not subject to any geographical limit and is characterised by a multiplicity of places for its performance. Therefore, only the general jurisdiction of Article 2 is applicable in the case of a contractual obligation not to do without any geographical limits – which, in the context of Converium settlement, was the obligation not to file against the Swiss companies. From a more general point of view, it is noticed that many European countries, such as Belgium and France, move towards an adoption of a national class action regime, with a large scope of protection that could also cover securities fraud class actions or of a particular law on securities class actions as the German KapMuG.62 The European Union has also expressed its intention for a harmonised Union scheme of collective redress, which «is needed and desirable, for any proposal in the field of collective redress to take the form of a horizontal framework including a common set of principles providing uniform access to justice via collective redress within the EU and specifically but not exclusively dealing with the infringement of consumers’ rights», as it was expressed in the 2012 Resolution of the European Parliament, entitled «Towards a Coherent European Approach to Collective Redress».63 However, several differences between litigation procedures in front of the American courts and the courts of European countries generate doubts on whether these new courts could effectively replace the American ones in the case of securities class actions. M.G. Warren underlines that «The EU’s member states generally have none of the facilitating features credited for

60

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Report Commissioned by the Dutch Ministry of Justice, pp. 43-45; J.J. Kuipers, loc.cit. note 53, pp. 235 (in footnote 41). C-256/00 Besix (2002) ECR I-1699. Kapitalanlegermusterverfahrensgesetz (Capital Market Investors’ Model Proceeding Act) that has provisions, which are similar to these of Section 10(b) of the US Securities Exchange Act. However, it’s an opt-in system that does not provide punitive damages; the rule ‘loser pays’ applies, while contingency fees are exceptionally accepted. Initially, the Act was expiring on 30 October 2012 but it was extended until 2020, with important modifications, such as the possibility of conclusion of a settlement between the defendant and the model claimant, which is approved by the court and which is binding for the parties that did not opt-out. European Parliament Resolution of 2 February 2012 on ‘Towards a Coherent European Approach to Collective Redress’ (2011/2089(INI)), § 15.

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the nurture and development of the U.S. securities class action.»64 Besides these «facilitating features» of the U.S. regime (namely, on the one hand, contingency fees, discovery mechanism, jury trials and punitive damages and, on the other hand, the non-application of the rule that the losing party pays the costs of the procedure, which is applied in Europe65), the author identifies another three obstacles. Firstly, many European regimes have not established general application for their class action legal framework, which means that securities class actions are excluded and therefore, investors have no other way than filing of individual action; secondly, in some countries, standing is exclusively reserved to specific type of organisations or associations; and thirdly, the opt-in mechanism not only is applied in several countries — for instance in the German regime on securities class actions — but is also recommended by the European Parliament regarding the European approach on collective redress.66 However, to all these obstacles, it should be added the fact that the dispositions of the European legal instruments, namely the Brussels I Regulation and the Rome I67 and Rome II Regulations,68 present difficulties in their application when applied in cases of a multinational class action. All things considered, it could be concluded that, on the one hand, for the time being, mostly due to its opt-out system, the Dutch system works as an alternative (albeit not identical) to the American system as applied in the pre-Morrison era. However, the severe criticism regarding its application and the Resolution of the European Parliament stating that collective redress in its European approach should be founded on the opt-in principle generate uncertainty on how long this practice of Dutch courts will continue. So, is it the dawn of a European era for securities class actions? Only time will tell.

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M.G. Warren, loc.cit. note 1, pp. 1084. Id., pp. 1084-1086. European Parliament Resolution, supra note 54, § 20. Regulation No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I), Official Journal L 177, 4.7.2008, p. 6-16. Regulation No 864/2007 of the European Parliament and of the Council of 11 July 2007 on the law applicable to non-contractual obligations (Rome II), Official Journal L 199, 31.7.2007, p. 40-49.

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Rome II and the Law of Financial Markets: The Case of Damage Caused by the Breach of Disclosure Sabine Corneloup* 1. Introduction The issue of compensation for damage caused by financial and stock market abuse is a topic that has received, so far, relatively little attention from scholars of private international law.1 During the negotiations for the Rome * 1

The author wishes to acknowledge the contribution of Mina Morova in translating the article from the original French. But the situation is changing as is shown in particular by the recent proposal of the Deutscher Rat für Internationales Privatrecht, March 31, 2012, IPRax 2012, p. 470 (in German and English), Rev. crit. dr. int. priv. 2012, p. 679 (in French). More generally, see the following publications that address all or some aspects of the subject: M.-E. Ancel, «La portée dans l’espace de la notation», in G. Virassamy (dir.), La Notation d’entreprises, L’Harmattan, 2010, p. 163; M. Audit, «Aspects internationaux de la responsabilité des agences de notation», Rev. crit. dr. int. pr. 2011, p. 581; S. Corneloup, «Vers une réforme du règlement Rome II: la réparation des dommages causés par une violation du droit des marchés fi nanciers nécessitet-elle une règle de confl it spéciale ?», in M. Douchy-Oudot, E. Guinchard (dir.), La justice civile européenne en marche, Dalloz, 2012, p. 63; D. Einsele, «Internationales Prospekthaftungsrecht – Kollisionsrechtlicher Anlegerschutz nach der Rom II-Verordnung», Zeitschrift Eur. Privatrecht 2012, p. 23; A. Engert, G. Groh, «Internationaler Kapitalanlegerschutz vor dem Bundesgerichtshof“, IPRax 2011, p. 458; F. J. Garcimartín Alférez, «Cross-Border Listed Companies», R. des C. 2007, t. 328, p. 9; F. Garcimartín, “The law applicable to prospectus liability in the European Union”, Law and Financial Markets Review 2011, p. 449; J. von Hein, «Finanzkrise und Internationales Privatrecht», Berichte der Deutschen Gesellschaft für Internationales Recht, Band 45, 2012, p. 369; M. Lehmann, «Where does economic loss occur?», Journal of Private International Law 2011, p. 527; M. Lehmann, « Proposition d’une règle spéciale dans le Règlement Rome II pour les délits fi nanciers », Rev. crit. dr. int. pr. 2012, p. 485; W.-G. Ringe, A. Hellgardt, «The international dimension of issuer liabilité», Oxford Journal of Legal Studies, 2011, Vol. 31, p. 23;

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II Regulation, this issue was not discussed either. Only the British government did raise the question, hoping that the issuer’s responsibility would be excluded from the scope of the regulation, but that proposal was not successful.2 Finally, civil liability for the infringement of financial markets laws is neither the subject of an express exclusion nor is there a special conflicts rule within the Regulation. The objective of this paper is to show that this situation is not fully satisfactory. Before examining the heart of the matter, some explanation is necessary for the formulation of our topic. The damages that we will be examining have the distinct characteristic of being purely financial damages. They consist of an economic loss to the victim, which is often particularly difficult to spatially locate.3 However, insofar as the Rome II Regulation considers the place where the damage occurred as the main connecting factor (Article 4), the application of the conflicts rules raises serious difficulties here. Two very different methodological approaches are conceivable in order to improve the rules of the regulation, so that they are better suited to the diversity of situations encountered. One possibility would be to make a distinction based on the nature of the damage.4 This would create a distinction, for example, between purely financial damages, moral damages, personal injury, or damage to tangible property, etc. This approach would transcend the damage caused by a violation of the financial markets law in

2 3

4

H. Synvet, A. Tenenbaum, Rép. internat. Dalloz, V° Instruments fi nanciers, 2009. On French domestic law, see for example C. Arsouze, P. Ledoux, «L’indemnisation des victimes d’infractions boursières», Bull. Joly Bourse 2006, p. 399; C. Clerc, «La réparation du préjudice subi par un actionnaire du fait de la diff usion de fausses informations», Rev. trim. dr. fin. 2007 / 1, p. 31; A. Pietrancosta, «Délits boursiers: la réparation du préjudice subi par l’investisseur», Rev. trim. dr. fin 2007 / 3, p. 21; V. Magnier, «Information financière et préjudice des investisseurs», Rec. Dalloz 2008, p. 558; S. Schiller, «L’indemnisation du préjudice de l’actionnaire en cas de diff usion d’une information erronée», Rev. sociétés 2009. n° 8, étude 12; N. Spitz, «La réparation des préjudices boursiers», préf. A. Pietrancosta, Rev. Banque, éd. 2010. Council of the European Union Document No. 7928 / 06 and 7709 / 06. M. Lehmann, «Where does economic loss occur?», Journal of Private International Law 2011, p. 527. Th is is the path adopted by M. Lehmann, see also B. Bonnamour of Claviere, «The damage in European private international law: Reflections from the Rome II Regulation on the law applicable to non-contractual obligations», PhD Thesis, Lyon III, 2011, which proposes to substitute the specialization of the confl ict rule made by the Rome II Regulation by a rule of confl ict built on the basis of different types of damages.

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order to include any and all purely financial damages. This method would thus make adjustments or clarifications to Article 4, in order to facilitate the localization of the damage depending on the nature of the harm suffered by the victim. Another way would be to look at the type of offenses, that is to say, to distinguish the different subject matters in question. This is the approach adopted by the Rome II Regulation, establishing special conflict rules concerning liability for defective products, damage caused by anti-competitive behavior, environmental damage, etc. In this second approach, purely financial damage is not an independent category but can also be found in other conflicts rules. Our reflection on the law applicable to damages caused by a violation of the financial markets law requires that we choose immediately between these two methodological approaches. The title of this article shows that we will engage in the second path, which is the specialization of the rules of conflict depending on the subject matter, and not on the nature of the damage. There are several reasons for this choice. First, it is the way in which the European authorities have already engaged themselves. Five years after the adoption of the Rome II Regulation, it hardly seems realistic to question a fundamental choice that the entire European system has relied upon. We can also see that the purely financial aspect of the damage is not the only characteristic that we find in the financial markets field. Other factors must be taken into consideration, such as the regulatory function of the rules governing financial markets or the close links between criminal sanctions, administrative sanctions and civil liability. In our opinion, this topic requires us to take into consideration all the characteristics of the field of financial markets, and not only to focus on the purely financial nature of the damage. The topic is highly relevant to the present, mainly because of the financial crisis, but also due to the reform talks currently underway in some Member States, such as France, in order to improve compensation for damages suffered by investors. The French Financial Markets Authority (AMF) published, in January 2011, a report proposing many options for the reform of French law on the subject.5 However, the readers of the report may be surprised by the lack of consideration for the transnational nature of many situations that give rise to compensation or indemnification claims. Indeed, internationality appears in the report only through the issue of French investors participating in a class actions brought in the United States. The question of the applicable law is not mentioned in the report. As such, it seems that the legal experts on financial markets have largely ignored issues of private international law, just as the drafters of the Rome II Regulation 5

AMF, “Report on compensation for damages suffered by investors”, 25 January 2011, available on http: // www.amf-france.org.

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have largely ignored the issues of violation of the financial markets law. A comparison of these two disciplines is indispensable today. Litigation regarding compensation is currently relatively under-developed, although there are divergences in this respect between members of the European Union. For example, in France, case law is still quite rare not only in the field of private international law, but also within the sphere of domestic civil law, while the German courts are seized fairly regularly for compensation claims based on market or financial abuse. In private international law, these claims mainly focus on the determination of the competent court. Judgments determining the applicable law are also rare.6 According to the AMF,7 the scarcity of French case law can be explained by a number of factors, some of which are common to other Member States, while others may be more specific to France. One factor is the non-attractiveness of the civil justice system. Under French law, the victim is likely to encounter difficulties to establish proof for fault, damage and causation all at the same time.8 These evidentiary difficulties also exist in other legal systems, but not necessarily to the same extent. For example, U.S. law facilitates the burden of proof incumbent on the victim in the field of causation.9 It is assumed that there exists a causal link between the decision of investors to acquire securities of a company and the false information disseminated in the market regarding that company. However, in many European countries, these assumptions do not exist.10 With regards to prejudice, the recent judgments of the French Supreme Court limit compensation for damages caused by a breach of duty to inform to only the “loss of opportunity” to make another capital investment or the relinquishment of an investment already made.11 6

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For example, BGH 13 July 2010, n° XI ZR 57 / 08 et n° XI ZR 28 / 09, A. Engert, G. Groh, “Internationaler Kapitalanlegerschutz vor dem Bundesgerichtshof”, IPRax 2011, p. 458. See the AMF report, op. cit., p. 6 and s. A. Couret, H. Le Nabasque et al., Droit financier, Dalloz, 2012, n° 1469 et s. Fraud-on-the-market theory: U.S. Supreme Court, Basic Inc. v. Levinson, 485 U.S. 224 (1988). J. von Hein, „Finanzkrise und Internationales Privatrecht“ Berichte der Deutschen Gesellschaft für Internationales Recht, Band 45, 2012, p. 400. See, however, the proposed Regulation of 15 November 2011 amending Regulation (EC) No 1060 / 2009 on credit rating agencies, COM (2011) 747 final, art. 35a, which aims to harmonize the rules of civil liability of credit rating agencies in Europe and set up a mechanism to reverse the burden of proof in favor of the victim. Com., 9 mars 2010, n° 08-21793, Rev. trim. dr. com. 2010, p. 374, obs. P. Le Cannu et B. Dondero, et p. 407, obs. N. Rontchevsky, Rec. Dalloz 2010, p. 761, obs. A. Lienhard, Rev. sociétés 2010, p. 230, note H. Le Nabasque.

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This essentially means that the compensation does not cover the entire loss, but only a fraction of it, so as to reveal the uncertainty surrounding any potential investment decision. In other words, investors are considered to have been deprived, by the provision of incomplete or inaccurate information, only of the opportunity to decide upon their investment differently. Another problem of the French civil justice is the importance of the cost of the procedure, given that the applicant is required to advance expenses, including for expert evidence. These costs are not always fully reimbursed even if the applicant is successful, which may discourage small investors to seize the courts. Moreover, there is no class-action mechanism that would reduce the cost of litigation for each individual victim. As for amicable settlement procedures, they are generally considered inadequate. For reasons of both evidence and cost, applicants often prefer to seize the criminal courts, where they can benefit from evidence being collected by the prosecution. This phenomenon has resulted in the coining of the term “over-attractiveness” of the French criminal justice.12 But seizure of criminal courts is obviously only possible if the fault causing the damage is at the same time a criminal offense. Various proposals are being discussed in France in order to facilitate the application process for compensation, which should lead to a development of this type of litigation in the future. The concept of breach of financial markets law, which we are dealing with in this paper, is extremely vast. It includes insider trading, price manipulation, punishment for giving wrong information to the public as well as violations of the duty to inform at the expense of issuers. As part of this study, a comprehensive approach to all of these violations does not seem feasible. Consequently, we will reason with examples. Given that most of the litigation concerning compensation stems out of information problems, we will devote our study to the example of damages caused by breach of disclosure requirements. In this particular area, the national laws of Member States of the European Union have been aligned on the most important points. A general disclosure obligation is mandatory in case of a public offering of securities or in case of admission of securities to trading on a regulated market, which results in the creation of an information document (prospectus) to be issued on the basis of Directive 2003 / 71 EC of 4 November 2003 called “Prospectus”. This general obligation is supplemented by periodic disclosure requirements to be borne by issuers whose securities are admitted to trading on a regulated market, which emanate in particular from Directive No. 2003 / 6 of 28 January 2003 EC called “market abuse” and from Directive No. 2004 / 109 EC of 15 December 2004 called “transparency”. Directive No. 2003 / 6 (and its various implementation measures) 12

See the AMF report, op. cit., p. 7.

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further establishes a permanent disclosure requirement, which compels the securities issuer admitted to trading on a regulated market to inform the public of any relevant information directly affecting them. However, the rules governing civil liability for breach of these disclosure requirements are left to the discretion of Member States.13 It is important to note that the rules governing disclosure requirements (and more generally financial markets law at large) operate in the way public law does, in the sense that they define themselves, unilaterally, their own scope of application.14 This applies to all instructions to follow as well as administrative sanctions that may be imposed by the national supervisory authorities in case of violations. The same goes for the penalties these violations are often likely to cause. This unilateral logic coexists with the bilateral approach embodied in the field of civil law by the Rome II Regulation. The coexistence of the two methods does reveal some complications, as we shall see later in the paper. It should also be noted that the rules governing different disclosure requirements are numerous and each of them is very precise. It is not possible here to go into detail, so we will reason instead by using concrete examples to show how the issue of compensation may occur in practice. Two examples of actual cases will be used as a guide for this study. The first was brought before the German courts, the second before the French courts. Example 1:

A German provider of investment services advised a German investor during several years for the execution of various financial transactions.15 To this end, the German provider opened an account with a brokerage firm based in London for its client. The London brokerage firm performed on this account various financial transactions on the London Stock Exchange that were at a loss. The investor claimed he was not adequately informed of the risks associated with these operations and called on the British firm for compensation for damages relating to the loss of the money invested.

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See, however, the proposed Regulation of 15 November 2011 amending Regulation (EC) No 1060 / 2009 on credit rating agencies, COM (2011) 747 fi nal, art. 35a, which aims to harmonize the rules of civil liability of credit rating agencies in Europe. F. J. Garcimartín Alferez, “Cross-Border Listed Companies”, R. of C. 2007, t. 328, p. 9 (especially p. 76 et seq.). The example is taken from ECJ, May 16, 2013, Melzer v. MF Global UK Ltd, C-228 / 11 (preliminary question on article 5-3 ° of Reg Brussels I).

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Example 2:

A French investor subscribed to shares of a Luxembourg undertaking for collective investment in transferable securities (UCITS) under Luxembourg law, which was managed by the Luxembourg subsidiary of a Swiss company.16 The latter was a “promoter” of the fund. The facts are related to the Madoff case since one of the U.S. companies of Bernard Madoff was given the mandate to manage the savings that were collected. The funds were invested exclusively in products recommended by Madoff ’s company who undertook the functions of both sub-custodian and broker. However, these facts were hidden from the public eye. Believing that the information contained in the prospectus concerning the management arrangements of the fund were erroneous, the French company acted in a civil action against the Swiss company. These examples require some clarification on the scope of application of the Rome II Regulation. In many cases, there is a contract between the victim and the defendant and the applicable law must be determined on the basis of the Rome I Regulation. It would have been the case in our example 1, if the investor had acted against the German company alleging that it had failed to fulfill its obligations under the contract executed between them. We will not discuss these actions here, since the scope of this paper is devoted exclusively to the Rome II Regulation. Besides, it is a frequent occurrence to question the liability of not only the company in violation of disclosure requirements but also that of the directors of the company.17 The different national legal regimes have various standings with regards to this issue. Under French law, the personal liability of directors is subject to the existence of willful misconduct of a particular gravity, which is incompatible with the proper exercise of social functions. However, with regards to equity partners who have suffered a personal injury, the liability of directors is not subject to such gross misconduct.18 Article 1, § 2 d) of the Rome II Regulation excludes from its scope such obligations that “derive from company law”. This exclusion applies specifically to aspects related to the internal functioning of companies. As such, the issue of personal liability 16

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The example is based on the judgment Com., July 12, 2011, No. 10-24006, Rev. crit. dr. int. pr. 2012, No. 1, note A. Tenenbaum, forthcoming. D. Cohen, “The civil liability of directors in private international law,” Rev. crit. dr. int. pr. 2003, p. 585. Com., March 9, 2010, No. 08-21547 and 08-21793, Rec. Dalloz 2010, p. 761, obs. A. Lienhard, rev. Companies 2010, p. 230, note H. The Nabasque Rev. trim. dr. civ. 2010, p. 575 obs. P. Jordan Rev. trim. dr. com. 2010, p. 374 obs. P. The Cannu and B. Dondero, and p. 407 obs. N. Rontchevsky.

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of directors seems to be an obligation under company law, not only with regards to equity partners, but also in relation to third parties.19 It should thus be excluded from the scope of the regulation in order to be governed by lex societatis. Nonetheless, beyond this very special issue of personal liability of directors, the exclusion of Article 1, § 2 d) does not involve liability for breach of disclosure requirements. Based on widely acknowledged scholarship, the latter falls well within the scope of the Regulation.20 Finally, we should also note that if the Rome II Regulation also excludes from its scope obligations deriving from “other negotiable instruments”, it is only “to the extent that these obligations arise out of their negotiable character” (Article 1, § 2 c). This is not the case when it is an obligation of compensation for breach of financial markets law. Based on these findings on the scope of Rome II, we can establish a first conclusion according to which liability falls within the scope of Rome II as long as it is not a contractual liability. This raises the question of whether the rules of conflict of law provided by the regulation are adapted to the specific problems of financial markets, and more specifically to disputes regarding the reporting of financial information. Using the two examples above, we will first consider whether the application of Rome II leads to satisfactory results. In case we reach a negative conclusion, a specialization of the rules then would appear necessary.21 As such, we will then outline the specific clarifications to be made regarding financial markets law that could be necessary in the course of a revision of the Regulation.

2. Application of the Rome II Regulation As the Regulation does not include any special liability rule within the sphere of financial markets, it is subject to the general rules of conflict. 19

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In this sense, see especially Mr. Menjucq, International Law and European companies Montchrestien, 2011, No. 118 and 119. W.-G. Ringe, A. Hellgardt, “The international dimension of issuer liability” Oxford Journal of Legal Studies, 2011, Vol. 31, p. 23, footnote on page 113, with many other references, J. von Hein, loc. cit., p. 389; F. Garcimartín, “The law applicable to prospectus liability in the European Union”, Law and Financial Markets Review 2011, p. 452; D. Einsele, “Internationales Prospekthaftungsrecht - Kollisionsrechtlicher Anlegerschutz nach der Rom II-Verordnung” Zeitschrift Eur. Privatrecht 2012, p. 23; M. Lehmann, « Proposition d’une règle spéciale dans le Règlement Rome II pour les délits financiers », Rev. crit. dr. int. pr. 2012, p. 488. For this conclusion, see also F. Garcimartín, “The law applicable to prospectus liability in the European Union”, Law and Financial Markets Review, 2011, p. 455.

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Attention must first be given to Article 12 regarding culpa in contrahendo since this provision applies in particular to violations of disclosure obligations. It is then necessary to consider the application of the general rule of conflict for injurious acts (Article 4 in conjunction with Article 14). Under the latter, due to the lack of common habitual residence of the parties in the same state and the lack of choice of law, liability is governed by the law of the place of injury, unless the circumstances of the tort are manifestly more closely connected to another country. Each of these connections should be examined in terms of their suitability for the repair of the damage caused by a breach of a disclosure obligation in financial markets.

a) The law of contract (culpa in contrahendo) The Rome II Regulation provides, in Article 12, a special conflict rule to non-contractual obligations arising out of negotiations prior to the conclusion of a contract.22 According to recital 30, the concept of culpa in contrahendo is autonomous and must include, inter alia, the breach of disclosure requirements to the extent that the obligation has a direct link with the negotiations prior to the conclusion of the contract. This concept could include the situation in our example 1, since the lack of information on the risks of the investment operations influenced the investor to conclude the contract and transfer the money to the account used in the transactions at issue.23 In principle, article 12 subjugates the disclosure obligation to the law that applies to the contract, which leads to the application of articles 3, 4 or 6 of the Rome I Regulation, depending on the nature of the contract. If this principle is applied to our example 1, we arrive at a satisfactory solution in the event that an action for damages would be against the German provider of investment services. Responsibility would then be governed by the law applicable to the contract between the two parties. In the absence of choice, the law would be German law, regardless of the classification of the contract. However, in our example, the action is directed against the English broker, who is not a direct counterparty to the French investor. The assessment of the situation is then quite different. It does not appear that the investor was in direct relationship with the broker. He always acted through the 22

23

See in particular P. Lagarde, “The culpa in contrahendo at the crossroads of EU regulations”, in Liber Fausto Pocar, Giuff re, 2009, vol. II, p. 583; R. Plender, M. Wilderspin, The European Private International Law of Obligations, Sweet & Maxwell, 2009, p. 729. However, in Example 2, the prospectus may not be considered, it seems to us it as being directly related to “dealings prior to the conclusion of a contract.”

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German provider. Under these conditions, one cannot speak of obligations arising out of negotiations prior to the conclusion of the contract. Article 12 should not be applicable to this type of liability. In addition, the liability of the English broker vis-à-vis the law of contract between the investor and the intermediary seems hardly suitable. If the parties have chosen a law to govern their contract, it would mean that this choice would be then applicable to a third party to the contract, which is obviously debatable. In the event that the law of contract cannot be determined, Article 12 states, in the alternative, a conflict rule identical to that of Article 4, which leads to the following analysis.

b) The law of the place of injury Article 4 subjects liability, in principle, to the law of the place where the damage occurred. The application of this law reveals two difficulties in financial markets: on the one hand, as we have already noted, the damage here is purely a financial loss, which in essence, is difficult to locate. On the other hand, there are cases where this approach does not seem to be the most appropriate solution.

aa) Difficulty in locating the damage

With regards to the localization of the damage, we are confronted with three different possibilities. We can first consider the place of the financial market in question. We can also consider the place of the habitual residence of the victim, which would correspond to the main location of his or her assets. Finally, there is the location where the victim holds the account that was used to carry out the litigious operations in question.24 In order to solve this problem of interpretation, it suffices to refer to ECJ case law, which was rendered with regards to Article 5-3 of the Brussels I Regulation. The Kronhofer judgment presents a similar hypothesis as described in our example 1 above, where the victim transferred money to an account abroad, which was then used for carrying out financial transactions. In this case, the damage seems to be located in the State where the account is held, and not in the State of residence of the victim where the majority of his or her assets are located.25 The mere fact that the victim suffered financial loss (resulting in the loss of his or her assets), which was incurred in another contracting 24 25

For a more detailed and nuanced analysis, see Lehmann, loc. cit. ECJ, 10 June 2004, aff. C-168 / 02, rev. crit. dr. int. pr. 2005. 326, note H. Muir Watt.

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State, is not deemed sufficient by the Court. If we apply this rule to our example 1, it would lead us to the application of English law, which is the law of the place of the account used for the trading of harmful stocks. The simplicity of this solution is unfortunately just a mere facade, as shown by judgments rendered by German courts which recently developed a distinction based on the type of harmful behavior involved.26 According to German courts, if fraud was the reason for the money transfer to the account abroad from the outset, the damage must then be deemed to be located in the State of residence of the victim. If the misconduct occurred after the transfer, it is only then that the damage must be deemed to be located in the State where the account is held. Under this line of reasoning, in the Melzer v. MF Global UK Ltd case (whose facts were provided in our example 1), the Landgericht Düsseldorf said that the damage must be located in the State of residence of the victim.27 Thus, despite the judgment rendered in Kronhofer, the localization of the damage is difficult and subject to different national jurisprudence.28 Similar problems arise with the localization of the damage in our example 2. One might be tempted to locate the damage at the place where the shares were sold and where the French company acquired them, which would lead to the application of the law of Luxembourg. However, the purchase was made from an account in France and could also call for the application of French law. Furthermore, misleading information was also diffused in France. Indeed, in this case, a few weeks after the purchase of shares by the French company, the AMF (Autorité des Marchés Financiers) issued a marketing authorization of the UCITS in France,29 on the basis of a

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BGH July 13, 2010, No. XI ZR 57 / 08 and No. XI ZR 28 / 09. In this case, see especially J. von Hein, loc. cit., p. 398; A. Engert, G. Groh, “Internationaler Kapitalanlegerschutz vor dem Bundesgerichtshof” IPRax 2011, p. 458. LG Düsseldorf, April 29, 2011, No. 15 O 601 / 09. In a recent PhD thesis, the removal of the injury test for all purely economic losses was proposed. This was due to the difficulty of locating the damage and replacing it with the criterion of the place of receipt of information leading to the damage, accompanied by, if necessary, the connection to the place of the most significant element to the offense: B. Bonnamour de Claviere, op. cit., No. 1361 and following (Hons 1371). The procedure for marketing authorization has been removed by Directive No. 2009 / 65 / EC of 13 July 2009 called “UCITS IV Directive” and replaceds with the European passport, which only requires a marketing notification to the competent authority of the member State by its counterpart in the member State of the UCITS. The Directive also aims to improve information for investors in particular

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prospectus that did not contained any conclusive information.30 The information was thus received in France where it influenced the behavior of the victim who then transferred money from a French bank account to Luxembourg. Again, we can note here that the connection with the place of the damage leads to legal uncertainty because of the difficulty of its localization. The example also shows that, in certain circumstances, the damage could also be located in the state where the harmful financial information has been released, at least if it is the same state where the victim acted based on this information.31 This reasoning has been applied in France for the liability of financial analysts. In the case of LVMH v. Morgan Stanley, the Paris Court of Appeals applied French law for the liability of an English bank for inaccurate and misleading financial analysis given to investors in France.32

bb) Inadequacy of the place where the damage occurred

The localization of the damage is affected by many uncertainties in financial markets. However, there are also other irregularities with regards to the place of injury. This manifests itself in the event that the damage is not located in the state of the financial market in question, but in another state. Very often, breaches of financial markets law cause harm to a large number of victims located in different places. A comprehensive settlement of such a dispute was exemplified by the Criminal Court of Paris in the Sidel case, where the Court granted more than 700 shareholders a flat rate of 10 euros per share.33 This would be rendered impossible if each request was subject to a different jurisdiction. Given the attractiveness of U.S. class actions, discussions are currently underway in several Member States with regards

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by establishing a key investor information document, which must be submitted to the investor prior to the purchase. The chronology is not very clear in the case. The trial court held that the purchase took place in France in connection with the marketing of the shares in France, while the Supreme Court situated the subscription in Luxembourg, considering that it was prior to the marketing authorization issued by the AMF. Lehmann believes that the mere receipt of information is not sufficient to characterize the damage, it must be something else. He relies in this respect on the words of Lord Denning in Diamond v. Bank of Montreal & London Ltd.. [1979] QB 333. CA Paris 30  juin 2006, Rev. trim. dr. com. 2006, p.  875, obs. N.  Rontchevsky, Banque et Droit n° 108 ; juill.-août 2006, p. 34, note H. de Vauplane. Criminal Court of Paris, September 12, 2006, in a case of spreading false information that influenced the course of action. The judgment was upheld by the Court of Appeals in Paris on October 31, 2008.

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the desirability of introducing a collective action claim in the financial and securities industry.34 Its effectiveness would require the application of a single law, which would not be guaranteed if the place where the damage occurred could designate a law other than that of the market in question. Moreover, the rules governing financial markets are essentially mandatory rules. They are adopted by national legislators (or by the European Parliament) to enforce a functioning of the national market. If the place of injury does not coincide with the location of the market where the damage is emanating from, it is likely that the rules of the State of the market in question will be applied as mandatory rules. The general rule of conflict may then be highly “punctured”, which is not a good solution in terms of predictability and legal certainty. In addition, different national authorities are responsible for the application of mandatory rules and are brought to enforce sanctions. The same misconduct can often give rise to criminal penalties, administrative sanctions as well as compensation for civil liability. These consequences are likely to be increasingly intertwined in the future. For example in France, when setting administrative sanctions, the AMF recommends taking into account the compensation for victims.35 However, the decisions of the financial markets authorities are strongly related to the operation of national markets. The application of the law on civil liability of another State would make these increasingly intertwined factors more difficult to handle.

c) The law of the common habitual residence of the parties When the victim and the person whose responsibility is invoked reside in the same country, Article 4 of the Rome II Regulation provides for the application of the law of their common habitual residence. One can imagine the following example: a French investor acquires shares of a French company whose securities are traded on the American market. The company publishes earning forecasts for the current year it knows it cannot meet and conceals from the public its deteriorating financial situation. The investor asks the company for compensation for the difference between the price paid for the acquisition of shares and the price received upon the resale of the shares. In such a case, the responsibility of the French company for diffusing false or incomplete information is governed by French law, since both parties have their habitual residence in France, even if the shares were bought and sold on the U.S. market. To the extent that this solution leads 34 35

In French law, see AMF report, op. cit., p. 18. AMF report, op. cit., p. 28.

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to a law other than that of the relevant market, the objections above can be repeated here. At the same time, the result here does not necessarily seem inadequate to us. The investor will probably seize a French court, which will then apply its lex fori. The solution also has the advantage of simplicity.

d) The law that manifestly presents the closest links To the extent that neither the place of injury nor the habitual residence indicator represents a connection suitable enough for damages in financial markets, some authors advocate the referral to the exception clause.36 While it is intended to govern only specific cases and not to provide a general solution for a type of liability, some authors consider it a lesser evil, given the inadequacy of the general rule. Indeed, the exception clause allows a certain type of flexibility, but it is perhaps better not to seek out for such an unpredictable and questionable solution when a revision of the Rome II Regulation is under discussion today. According to the widely prevailing view in France, we only endorse a punctual use of paragraph 3 of Article 4, and therefore discard a systematic use of the exception clause.

e) The law chosen by the parties The choice of law for violations of the financial markets rules is worthy of consideration. Indeed, the rules governing financial markets have several objectives.37 On the one hand, they protect investors and on the other, they also have a public purpose for market regulation. Different disclosure requirements imposed on the issuers and other stakeholders allow efficient pricing and the development of an overall confidence in the market. In other words, these requirements are intended to allow the market to exercise its control. Here, civil liability comes into play on two different grounds. It first responds to the private interests of investors for compensation of their loss, but it also provides control over the market through the establishment of an external corporate control mechanism. The desire to promote individual claims is at the same time helping the public regulation objective by allowing private implementation of the Financial Markets Law. In United

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W.-G. Ringe, A. Hellgardt, op. cit., p. 23. F. J. Garcimartín Alférez, «Cross-Border Listed Companies», R. des C. 2007, t. 328, p. 9.

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States, this concept is called “regulation through litigation”.38 In Europe, the work of Horatia Muir Watt in particular shows the emergence of a regulatory function entrusted to private law and reveals the impact of these policies on the economic regulation of private international law.39 Particularly in the Rome II Regulation, this phenomenon has been directly applicable with regards to special conflict rules on competition law and environmental law. The analogy with a damage caused by a breach of competition law is particularly interesting with regards to our subject in this paper. Indeed, the latter reveals many similarities with the law of the financial markets, not only with regards to regulatory functions, but also in terms of the entanglement between administrative sanction and civil liability, as well as the difficulties for proof, the cost of procedures, and the opportunity for collective action, etc. Analogies with competition law are not uncommon.40 According to recital 21, the conflict rule of Article 6 has the function, among other things, of guaranteeing the proper operation of the market economy. However, Article 6-4 of the Rome II Regulation excludes party autonomy from this type of damage. Indeed, it seems difficult to accept that the parties may, by agreement, derogate to a law which is inevitably enforceable, at least if it presents close ties to case. The law should not be at the disposal of the parties. However, the law of financial markets, just as competition law, carries out such mandatory policies. It seems desirable that the conflict rules applicable to damages caused by violations of the financial markets law are similarly endowed with a regulatory function, which leads to the rejection of party autonomy in this matter. Insofar as this study has highlighted the inadequacy or inappropriateness of factors embodied in the Rome II Regu38

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On this concept, see especially W. K. Viscusi (ed.), Regulation Through Litigation, AEI-Brookings Joint Center for Regulatory Studies, 2002 H. Muir Watt, “Economic aspects of private international law,” R. of C. t. 307, 2005, p. 13; W.-G. Ringe, A. Hellgardt, op. cit., p. 23; J. von Hein, loc. cit., p. 370 and s. F. Cafaggi, H. Muir Watt (eds.), Making European Private Law: Governance Design, Edward Elgar Publishing, 2008, the same authors, The Regulatory Function of European Private Law, Edward Elgar Publishing, 2009. And specifically in tort, see D. Bureau, H. Muir Watt, Droit international privé, PUF, 2010, t. 1, No. 561, H. Muir Watt, “Rome II and governmental interests: for a functionalist reading of the new settlement of the conflict of laws in tort,” in S. Corneloup, N. Joubert (ed.), The EU Rome II Regulation on the law applicable to non-contractual obligations, Litec, 2008, p. 129. See also H. Muir Watt, note under Supreme Court of the United States June 24, 2010, and Morrison. c. National Australia Bank, rev. crit. dr. int. pr. 2010, p. 714. Eg., OLG Frankfurt August 5, 2010, No. 21, AR 50 / 10, Entscheidungen zum Wirtschaftsrecht (EWiR) 2010, p. 725, note P. Mankowski.

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lation with regards to violations of financial markets law, it is now necessary to consider the content of an eventual revision of the Regulation.

3. Specialization of the rules of the Rome II Regulation 20. Two approaches are possible.41 On the one hand, we could make a special conflict rule for this type of non-contractual obligations which derogates from the general rule of the law of the place of injury, as was done for example, in Article 5 for product liability. On the other hand, it is also possible to make a special rule that would simply be intended to clarify the operation of the rule, based on the model of Article 6, which, according to Recital 21, “is no exception to the general rule in Article 4, paragraph 1, but [...] accurate”. Given the many similarities between financial torts and torts relating to competition, the latter option seems to be best suited.42 The rule in Article 6 deserves, in our opinion, to be taken as a model. After outlining this proposal, we will address the criticism it is likely to encounter.

a) Draft proposal In the pursuit of accuracy in localizing the damage, it is possible to adopt a functional approach and propose a concretization of the place of the damage for various types of financial and securities violations. This would allow us to distinguish, for example, between the diffusion of incomplete or incorrect information on the one hand, and market abuse on the other (insider trading, price manipulation, etc.). However, if such a nuanced solution is probably best for each individual case, it nevertheless seems not ideal, due to its excessive complexity and the qualification problems that it may cause. It is better to find another, more uniform, solution. Can the rule on violations of competition law be implemented to violations of financial disclosure? Article 6-3 of the Rome II Regulation determines what is meant by the place of damage in competition law: it must be understood as the location of the affected market (Art. 6-3-a.). In cases 41

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During the Hague Conference, a third way was suggested in the form of negotiation of an international convention on the law applicable to the civil aspect of violations of securities laws: E. Gaillard, “The lessons of the Morrison case. Reflections on the judgment of the Supreme Court of the United States on June 24, 2010”, Bull. Joly Exchange 2010, p. 308. This is also the approach advocated by D. Einsele, loc. cit., which also relies on the similarities with the competition law.

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where there are multiple affected markets, the idea is for applicants to submit their claims through a single jurisdiction rather than to break down the offense into a plurality of offenses located in different states (Art. 6-3-b). Applicants can choose to base their claims on lex fori, provided that the court seized belongs to the State of the defendant’s domicile and that the market of that State is directly and substantially affected by the restriction on competition in question. Some bemoan the futility of this rule, precisely because it requires exactly what Article 4-1 implicates. However, in an area where the localization of the damage is difficult, such precision seems useful and makes up a good legislative policy. As such, the method of Article 6 may be transposed to the financial and securities violations. Therefore, our proposal is that, during the next revision of the regulation, a new section be inserted in the text stating that, in terms of financial markets, the law of the place of the relevant market governs the indemnification of damages.43 The law thus identified can be exceptionally excluded on the basis of the exception clause in favor of the law of the place with the closest connection to the offense, since the multiplicity of situations requires such an element of flexibility. This solution would have several advantages. In cases of multiple victims, a comprehensive settlement would be facilitated. All players on the market (issuers and investors) would be treated equally. Most mandatory rules that may be applicable on an international level would be those of the state of the relevant market whose law would normally be applicable. The risk of interference from mandatory provisions would then greatly be reduced and liability would be governed by the same law under which financial authorities impose administrative sanctions.44 This correlation between capital markets law and the law of civil liability is a desired result, as was shown in the competition law example.45 Better compensation for victims under the administrative procedure (as required by the AMF) would then be facilitated. Similarly, liability law should, in most cases, coincide with

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See in this sense D. Einsele, loc. cit. For an application of the law of the market, as a law of the place of injury. See also P. Mankowski, in C. Reithmann, D. Martiny, International Vertragsrecht, Verlag Dr. Otto Schmidt, 2010, No. 2530. However, the sanctioning power of the AMF extends to some behaviors which are not localized in the French market. See, in particular, Com., June 18, 1996, Pierre Bergé case, JCP 1996. II. 22710, note H. Hovasse (criterion of listing of securities on a French stock exchange). H. Buxbaum, R. Michaels, “Jurisdiction and Choice of Law in International Antitrust Law - A U.S. Perspective,” in J. Basedow, S. Francq, L. Idot (ed.), International Antitrust Litigation, Hart Publishing, 2012, p. 225 (especially p. 231 et seq.).

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the applicable criminal law.46 With regards to jurisdiction, compensation proceedings often take place, at least in the current French practice, in the criminal courts that in most cases, should be those of the state of the market concerned. Article 5-4 of the Brussels I Regulation allows the victim to seize criminal courts for his civil compensation claims. The result is that the competent court should coincide with the applicable law, which is always a simplifying factor. When the habitual residence of the victim and the person whose liability is sought are located in the same State, instead of automatically applying the law of that State, the victim could be allowed to choose between the law of the place of the relevant market and the law of the common habitual residence. In practice, the victim will only exercise this choice if the law of the habitual residence is more favorable, which contributes to the political consolidation of markets and the desire for better compensation for investors. However, the possibility of a choice of law by the parties under Article 14 should be excluded, at least with regards to the choice prior to the occurrence of the damage. As for the possibility of a later choice, the solution is more questionable. We are rather hostile to the permission of any choice of law by the parties. However, it has recently been shown, quite convincingly, that after the damage occurred, civil liability only has a protection function for individual interests. As such, the regulatory function of the market is no longer an issue at this stage.47

b) The testing of the proposal The rule of the place of the relevant market is subject to a number of criticisms, which we would like to address here.

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However, this is not necessarily the case since the application of French criminal law is not dependent on the completion of the transaction on the French market. Just one of the elements of the offense was committed on French territory. See in particular Pechiney Triangle case about insider trading, Crim., November 3, 1992, rev. Companies 1993, p. 436 notes Jeandidier; Rec. Dalloz 1993, p. 120, note Ducouloux-Favard, rev. science crim. 1993. 787 obs. G. Giudicelli-Delage, Crim, October 26, 1995, rev.. science crim. 1996, p. 138 obs. J.-P. Dintilhac, rev. Companies 1996, p. 326 obs. B. Bouloc. Of the two cases, v. as I. Fadlallah, rev. crit. dr. int. pr. 1996, p. 621. D. Einsele. See also the proposal of the Deutscher Rat für Internationales Privatrecht, March 31, 2012, IPRax 2012, p. 470 (in German and English), Rev. crit. dr. int. priv. 2012, p. 679 (in French).

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The first criticism of this rule is with regards to the inadequacy of its application in the European Union.48 The concept of the “European passport” was introduced by Directive 2003 / 71 EC called “Prospectus” of 4 November 200349 and Directive No. 2004 / 39 EC on financial markets instruments of 21 April 2004,50 that we also find today in the UCITS framework with Directive No. 2009 / 65 EC of 13 July 2009 called “UCITS IV Directive”. This concept reflects and embodies the freedom of movement within the internal market by establishing a logic based on the principle of the country of origin. The law of the country of origin governs the activity of providers of investment services. It is this law that imposes different disclosure requirements based on a harmonized set of rules under the various directives that have been adopted in this field. An approval process must be sought from the competent authority of the country of origin of the provider of investment services. On this basis, the provider may exercise its activity in another Member State, either through a branch or through free provision of services. However, according to critics, the application of the law of the relevant market to civil liability would lead, again, to a fragmentation of the European market, which is a scenario that the harmonization directives in the field have specifically intended to avoid. This argument does not seem conclusive, which can be shown by a brief comparison with liability for defective products. With regards to defective products, the free movement of goods has not led the drafters of Rome II to retain the principle of the country of origin of the manufacturer. In fact, according to Article 5, the law of the habitual residence of the person injured often governs liability for products. With regards liability for violations of rules governing the prospectus, it is sometimes argued that the law governing the drafting of the prospectus must also govern civil liability for damages caused by a breach of these rules. This is the result of linking liability with the law applicable to the disclosure requirements. Thus, the law applicable to liability would be dependent on international criteria under Directive 2003 / 71.51 However, in relation to non-member countries, the rule set by the Directive refers either to the place of the public offering of securities or the location of the regulated market through which the securities are admitted to trading.52 These two 48 49 50 51

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With regards this critique, see especially J. von Hein, loc. cit., p. 418. Amended by Directive No. 2010 / 73 of 24 November 2010. As last amended by Directive No. 2010 / 78 of 24 November 2010. For this argument, see especially H. Synvet, A. Tenenbaum, Dem. boarding. Dalloz, Fift h Financial Instruments, 2009, No. 40. Other authors limit the solution to only intra-European relations: J. von Hein, loc. cit., p. 419. H. Synvet, A. Tenenbaum, loc. cit., No. 35.

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criteria seem to refer to the place of the relevant market and therefore do not contradict the aforementioned solution. In contrast, in intra-EU relations, the Directive establishes the rule of the country of origin, leading in particular (but not always) to the law of the registered office of the issuer, which does not necessarily coincide with the market place in question. To avoid such a result, some authors recommend the aforementioned linking mechanism. In this regard, we do not think it is bothersome to link liability law with a law other than those applicable to disclosure requirements.53 Indeed, financial markets law does not look at this issue very differently compared to other non-contractual obligations.54 As a base rule, the Rome II Regulation has chosen to consider the place where the damage occurred and not the place where an event gave rise to the subsequent damage. Thus, the drafters voluntarily accepted the possibility that liability can be governed by a law that is not the one according to which the liable person has determined his behavior. The only concession to that is contained within Article 17 of the Regulation, which is about rules of safety and conduct.55 Indeed, Article 17 allows taking into account the law of the place where the event gave rise to a subsequent damage in order to assess the defendant’s conduct.56 In terms of liability with regards to the prospectus, the event giving rise to a subsequent damage is the formation of a prospectus containing inaccurate, incomplete or misleading information. This behavior is to be located in the State of the registered office of the service provider. Thus, if we take an example where French civil law would be applicable to the relevant market, in order to assess the existence of fault under Articles 1382 and 1383 of the Civil Code, one should refer to the law of the headquarters

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Art. 156 of the Swiss Private International Law Act, alternately subjects liability with regards to the prospectus to lex societatis or the law of the issuing State. This rule does not lead to a more consistent application of the law governing the disclosure requirement. For a very precise critical analysis of all the arguments in favor of linkage, see D. Einsele, loc. cit.; F. Garcimartín, “The law applicable to prospectus liability in the European Union”, Law and Financial Markets Review 2011, p. 454. Even in the field of traffic accidents, on the basis of the Rome II Regulation or the Hague Convention of 4 May 1971, it frequently happens that liability is governed by a law that is not the governing “route” Code. Under these conditions, it is unclear why this separation is not possible for liability related to the prospectus. See on this provision, in particular, J. von Hein, “Die Behandlung von Verhaltensregeln Sicherheits-und nach Art. 17-Verordnung der Rom II”, in Festschrift für B. von Hoff mann, Gieseking, 2011, p. 139.

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in order to assess the obligations (or lack thereof) of the service provider.57 In intra-EU relations, considering the harmonization of substantive law, the differences between national laws should be minimal. In relations with non-EU countries, differences may be important, but Article 17 allows some leeway to the judge, stating that they should only be taken into account “as a matter of fact” and only “as long as needed”. Another criticism offered is the difficulty of identifying the location of the market place in a number of different situations. No problem arises, in principle, with regards to an operation on a regulated market, since the identification of the relevant market is simple. In case of an IPO, the relevant market is the one where the shares are being offered. If the IPO is directed towards several different markets, different laws apply respectively, depending on the market where buyers acquire their securities. However, real difficulties arise for companies subject to a multiple listings.58 Problems arise here, for example, with regards to takeover bids.59 The determination of the relevant market in this case might derive from Directive 2004 / 25 EC of 21 April 2004 on takeover bids. This directive refers to the headquarters of the company in question in order to designate the competent supervisory authority, only if the securities of that company are admitted to trading on a regulated market in that State (Art. 4-2-a). If the securities of the company are not admitted to trading in the State of its headquarters, the directive establishes a complex system of alternative solutions (Art. 4-2-b and c). This system identifies the relevant market and thus the law applicable to the liability. In case of multiple listings, the relevant market would be the one that coincides with the registered office of the target company. Other difficulties of locating the relevant market may arise when an investor wants to buy shares of a company with multiple listings. In that case, the provider of investment services must perform the operation on the basis of the best 57

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The situation may arise somewhat differently in a country like Germany who admits liability sometimes only for the violation of a law of protection (Verstoβ gegen ein Schutzgesetz, § 823 para. 2 BGB). In this case, the separation between the law of responsibility and the law applicable to the disclosure requirement may lead to difficulties which are not, however, specific to the field of financial markets. On this subject see F. J. Garcimartín Alferez, “Cross-Border Listed Companies”, op. cit., especially p. 77 and following. A. Tenenbaum, “The international jurisdiction of supervisors of financial markets in a public offering” Rev. crit. dr. int. pr. 2006, p. 557, concerning the public offering of the company Mittal Steel (Netherlands seat and shares listed on Euronext and the New York Stock Exchange) on the shares of Arcelor (seat in Luxembourg and registered securities listed on Euronext Brussels, Euronext Paris, Luxembourg and Madrid markets).

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possible result,60 which renders the market unpredictable for the investor concerned.61 In such cases, the solution could be the use of the exception clause. Yet another example is when lack of information on an unfavorable evolution of the market prevented an investor to take the decision to sell its shares. In this case, the relevant market is also difficult to identify, especially with regards to securities that are traded on several different markets given that we do not know which market the investor would have sold its shares in. Here again, the solution may lie in the use of the exception clause. Despite the backup solutions that we can imagine, namely, the use of the exception clause or designating the competent national supervisory authority, further reflection seems necessary with regards to definitions that would further clarify the concept of “relevant market”. Such a reflection requires an in depth knowledge of capital markets law and is thus beyond our own field of work and should be conducted by a specialist in the field.62 Moreover, it is questionable whether a rule similar to that of Article 6-3-b of the Rome II Regulation is at all necessary in litigation matters concerning financial information. We can take the example of UCITS marketing in several different Member States on the basis of inaccurate information in the prospectus. When an investor subscribes to shares in different states on the basis of this inaccurate information, it should theoretically be considered that there are multiple offenses, each subject to the law of the respective markets. Would it be appropriate to allow investors to base their claims on a single law, as state in Article 6 for competition law? This would allow victims to base their claims on lex fori, provided that the court seized is located in the defendant’s domicile and that the market of that State is affected by the harmful act. Nonetheless, we are not sure that multiple markets are commonly affected in practice and that such a possibility is really appropriate. A special observation should be articulated for the liability of rating agencies for damages caused by their rating activity. It is not a question here of disclosure in the sense we have seen in our study, but the subject is closely linked, which justifies our interest. In this area, since the adop60

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Pursuant to art. 21 para. 1 of Directive No. 2004 / 39 on markets in financial instruments. W.-G. Ringe, A. Hellgardt, loc. cit. See in particular the proposals of F. Garcimartín, “The law applicable to prospectus liability in the European Union”, Law and Financial Markets Review 2011, p. 455. Based in particular on the determination of the place of acquisition of the financial instrument. See also the proposal of the Deutscher Rat für Internationales Privatrecht, March 31, 2012, IPRax 2012, p. 470 (in German and English), Rev. crit. dr. int. priv. 2012, p. 679 (in French).

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tion of Regulation 1060 / 2009 EC of 16 September 2009 on credit rating agencies,63 agencies wishing to operate within the EU must be established and registered there. There are different obligations imposed on them by the law of the European Union and a breach of any of these obligations must be considered in accordance with the “applicable national law on civil liability” (Recital 69). However, it should be noted that a proposed regulation under discussion aims to harmonize national rules on liability in this are. This would deprive the question of the applicable law of its importance for agencies under the scope of the European Union.64 Currently, under French law, Article L. 544-5 of the Monetary and Financial Code provides that “credit rating agencies [...] undertake their Tort liability, both in respect of their customers and third parties, for the consequences of mistakes committed in the implementation of their obligations laid down in Regulation (EC) No 1060 / 2009.” These provisions should be combined with the Rome II Regulation in order to determine the law applicable to liability.65 Under our proposal, the determination of the relevant market would lead us to the law of the market where the financial instruments were issued66 or the market where the company’s shares are traded. This could be waived on the basis of the exception clause in some special circumstances, such as when the rating agency was actually not aware of this market during the development of its rating67 or when the company was under multiple listings.68 63 64

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Amended by Regulation No 513 / 2011 of 11 May 2011. Proposal for a Regulation of 15 November 2011 amending Regulation (EC) No 1060 / 2009 on credit rating agencies, COM (2011) 747 final, art. 35a. Indeed, a national law has no power to waive a rule of confl ict imposed by a European regulation. For this reason, we do not agree with the analysis proposed by Mr. Audit which purports that L. 544-5 of the French code (associated with recital 69 of the Agency regulation) imposes a confl ict rule subjecting agencies with offices in France to liability under French law: M. Audit, “International Aspects of the responsibility of rating agencies”. Rev. crit. dr. int. pr. 2011, p. 581 (especially p. 590). Since this liability hypothesis falls within the scope of the Rome II Regulation, the reference in recital No. 69 to “national law regarding liability “should be understood as meaning “national law designated by the Rome II Regulation.” M.-E. Ancel, «La portée dans l’espace de la notation» in G. Virassamy (ed.), La Notation d’entreprises, L’Harmattan, 2010, p. 163, holds the place of the damage as the place where “financial instruments are held by the investor.” M.-E. Ancel, loc. cit., considers an application of the exception clause in favor of applying the law of the domicile of the issuer, to the extent that the location of the investment or of trading are not necessarily meaningful and were not necessarily known by the agency when it developed its rating. If the title, rated by a rating agency established in Europe, is only listed in a third

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Many questions remain open to debate and deserve further analysis beyond the scope of this study. Before we finish, however, we have yet to apply the solution we have proposed to the two examples we used in this study. In our example 1, we have reached the application of English law, which is the law of the market place where the broker performed the harmful operations. This is a predictable solution for both parties. One might be tempted to argue that the law is perhaps not sufficiently protective of the interests of the investor, but in reality, there is no guarantee that the law of the residence of the victim would be more advantageous. Victims do not always live in countries that provide the highest degree of protection. If the investor decides to act against the German company who provided advice during these operations (and not against the English dealer), then liability would be governed by the law of the contract, either because of contractual qualification of the action (under the Rome I Regulation), or through culpa in contrahendo (application of the Rome II Regulation). In our example 2, so long as Luxembourg is the place where the UCITS was marketed and where the French investor held its subscription, the action for damages against the Swiss “promoter” of the fund is subject to Luxembourg law. Luxembourg is thus the state of the market concerned. The result would be different if the subscription took place after the marketing authorization of the UCITS was given in France. In that case, the relevant market would be the French market, leading to the application of French law. If we slightly modify the example to imagine that the promoter of the fund is a French company, the rule would allow the victim to choose between Luxembourg law (the law of the relevant market) or French law (which is the common habitual residence of the parties).

country (which is a rare situation), the law of a third State would govern the liability for breach of the obligations imposed by the regulations of “Agencies”, which is not a desirable result. However, to evaluate the performance of the rating agency, art. 17 of the Rome II Regulation would lead us to consider rules of conduct in force in the state where the agency has developed the rating. The Regulation on credit rating agencies would then be the benchmark for determining liability. And in any case, the exception clause would promptly serve to remedy an inappropriate solution.

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Collective Redress and Global Governance (Concluding Remarks) Nikitas E. Hatzimihail* 1. Introduction This has been an exciting project, in which a class of distinguished experts has collectively redressed the aggregate implications of a complex subject for legal practice and legislative policy. This collection of essays constitutes the continuation of our discussion in print. It is hoped that this book will constitute a point of reference as well as act as a catalyst for a broader discussion, in Europe and abroad. My own personal contribution to this discussion shall consist of a summary of the principal themes and ideas explored in this book (and the meetings that gave birth to it). The first part of the paper considers collective redress itself. What subjects are best dealt with in aggregate litigation? What are the policy implications of aggregate litigation in the national, cross-border and global context? Last but not least, what are the available procedural remedies? The second part examines in brief problems (and possibilities) under the existing framework for cross-border aggregate litigation.

2. (Re)thinking Collective Redress (a) Typology of collective redress First, what constitutes collective redress? In the 2011 consultation, the Commission insisted on its being used as “a broad concept encompassing any mechanism that may accomplish the cessation or prevention of unlawful business practices which affect a multitude of claimants or the compensation for the harm caused by such practices.”1 In its 2013 Communication, *

Acknowledgments and disclaimers are in order. I would like to thank my co-editor Arnaud Nuyts, who envisaged this project and has been the driving force behind this project and this book. This paper expands on the conclusions presented in the Brussels Conference of 27 April 2012. It is really “concluding remarks” rather than

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the definition is of “a procedural mechanism that allows, for reasons of procedural economy and / or efficiency of enforcement, many similar legal claims to be bundled into a single court action.”2 In both definitions, it is emphasized that collective redress can take the form of either injunctive relief (“where cessation of the unlawful practice is sought”) or compensatory relief (“aimed at obtaining compensation for damage suffered”).3 In his paper, Burkard Hess elaborates on these “umbrella definitions” as including “group litigation, model case-litigation, actions brought by ombudsmen or consumer organizations, collective settlements based on opt out mechanisms, skimming-off actions and injunctions against unlawful business practices.”4 In his turn, Arnaud Nuyts opts for the distinction between three models: group action (where “a number of identified claimants bring actions in one procedure to enforce their claims together”), representative action (where “an ex ante authorized or representative body bring actions on behalf of a group of individuals, who are not themselves parties to the proceedings”) and class action (where “a plaintiff acts on behalf of a group of individuals who will be bound by the outcome of the procedure, either if they have ‘opted in’ or if they have not ‘opted out’”).5 Second, which subjects are best suited for collective redress? The principal EU legislative initiatives in this area have concerned consumer and antitrust matters.6 Financial regulation and mass torts have also been – or are being – addressed in some of the Member State legislative initiatives. Hess points to the affinities – and need to delineate – between insolvency proceedings and collective redress.7 Others have in mind forms of what could be called public interest litigation. Linda Silberman, discussing U.S.-wide classes over state law claims, enumerates “damage actions for consumer

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a conclusion properly speaking. In that sense, it cannot aspire to and does not do justice to the wealth of contributions in this book. In this paper, I am using the terms collective redress, class actions and aggregate litigation somehow indiscriminately. Class actions are of course a species to the genus of aggregate litigation, and especially of collective redress. SEC(2011). COM(2013) 401. COM(2013) 401. Hess, Collective Redress and the Jurisdictional Model of the Brussels I Regulation, this volume, p. 59. Nuyts, Consolidation of Collective Claims under Brussels I, this volume, pp. 69-70. See also Tzakas, Effective Collective Redress in Antitrust and Consumer Protection Matters: A Panacea or a Chimera? (2011) 48 Common Market Law Review, 1125 ff. Hess, this volume, pp. 59, 66-67.

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fraud or misrepresentation, overcharges in contract and insurance cases, personal injury and breach of warranty claims for defective products, punitive damages classes, and claims for medical monitoring”.8 Horatia Muir Watt justly adds “environmental claims and diverse public interest or human rights suits which frequently take on a strong collective dimension”.9 Another set of typology has been proposed by Michael Karayanni, who, building on the distinction between positive-value and negative-value class actions,10 has grouped aggregate civil claims into three categories comprising respectively consumer claims (large group of claimants with small individual claims), mass tort claims (large group of claimants with substantial claims) and claims arising out of human rights violations.11 It goes without saying that this is the beginning rather than the end of a very interesting discussion.

(b) Policy considerations We now come to the policy considerations involved in facilitating class actions, and more generally providing appropriate regimes for collective redress. Ralf Michaels puts it in terms of three problems that class actions – and collective redress in general – try to solve: litigation costs (consolidation), undercompensation and underregulation.12 Collective redress is an important tool for correcting market failure – in the sense of offsetting the insufficiency of individual claimant incentives in bringing actions – or providing a protective cover – but also in 8

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Silberman, The Role of Choice of Law in National Class Actions, (2008) 156 University of Pennsylvania Law Review (U Penn L Rev), 2002. Muir Watt, Brussels I and Aggregate Litigation or the Case for Redesigning the Common Judicial Area in Order to Respond to Changing Dynamics, Functions and Structures in Contemporary Adjudication and Litigation, Praxis des Internationalen Privat- und Verfahrensrechts (IPrax) 2010, 113. Karayanni, The Class Action Experience in Israel and the Value of Having a Rrepresentative with a Peronal Claim, this volume, p. 204 with references to Redish / Berlow, The Class Action as Political Theory, (2007) 85 Washington University Law Review, 762: in Positive Value class actions, “individual claims are sufficiently large so that “each claim would be independently marketable even in the absence of the class action device’.” In Negative Value class actions, “the costs in establishing and collecting the individual claims are greater than the potential recovery.” Karayanni, A Model Typology for Class Actions: Lessons from Israel (on fi le with editors). Michaels, European Class Actions and Applicable Law, this volume, pp. 117-118.

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the sense of providing another mechanism of regulatory enforcement to supplement or substitute the governmental ones.13 Such privatization of regulatory enforcement may allow for a more efficient allocation of administrative resources (which are all too finite, especially in a time of economic crisis). Lia Athanassiou has elaborated, in that regard, on the opportunities and challenges collective redress presents to competition policy makers.14 It could also achieve for economies of scale in the administration of justice system and facilitate evidence gathering. An effective mechanism for collective claims management might also serve the interests of defendants, allowing closure and a definitive determination of liability. At the same time, collective redress raises issues of procedural fairness (in a strict and a broad sense) and legal ethics. We could speak of a dual agency problem. Do representatives adequately take into account the interests of other members of the class?15 Moreover, whose interests do the claimants’ counsel really take into account? Such questions are exacerbated by distance, borders and different cultures involved in a transnational context. To quote Horatia Muir Watt, “collective redress in an international - at least, trans-Atlantic context -- can give rise to sophisticated strategies as between rival plaintiff ’s counsel, often to the detriment of the plaintiff ’s own collective interests.”16 Dealing effectively with cross-border aspects of collective claims requires us to consider the substantive, “domestic-law” aspects of mass claims. At the same time, achieving substantive justice more and more requires taking into account procedural regimes and their crossborder or even global dimension.

(c) Procedure Mechanisms The mechanics of a class action have been discussed in detail by several of the contributions in this volume. I would single out Michael Karayanni’s thorough account of the gradual development of a class-action regime in Israel, a country with a strong American influence in its legal thinking but

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As is correctly pointed out by Ralf Michaels, this volume, p. 115, even though collective redress is principally aimed at regulation in the U.S. and at compensation in Europe, the two aims go in effect hand in hand. For more on this point, see also Gorywoda / Nuyts / Hatzimihail, Introduction: Market Regulation, Judicial Cooperation and Collective Redress, this volume, pp. 34 ff. Athanassiou, Collective Redress and Competition Policy, this volume, pp. 147 ff. Karayanni, this volume, pp. 200 ff. Muir Watt, IPrax 2010, 115.

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also its own, different tradition and preconceptions.17 Karayanni forcefully argues that we must differentiate between the different kinds of class actions and that special types of class actions need special rules – an argument perhaps, for separate procedural instruments (though not necessarily with regard to conflicts issues) in the different sectors involving collective redress. A procedural issue with strong implications for collective redress itself and private international law concerns the organization of the class. On the one hand, certification creates its own issues of choice-of-law, even creating dangers of splitting claimants into separate classes and necessitating separate lawsuits in different jurisdictions. On the other hand, the contest between opt-in and opt-out mechanisms appears as the principal dividing line between national laws and has implications from pre-trial to the enforcement stage. In the end, as Richard Fentiman points out, collective redress does not involve simply “a conflict between procedural justice … and efficiency,” but rather “a conflict between different conceptions of procedural justice … The provision of effective procedures for collective redress involves a compromise between traditional conceptions of due process, as expressed in the rules governing the recognition and enforcement of foreign judgments, and wider conceptions of procedural justice. It involves, for example, measuring the apparent unfairness of binding a non-participating class member, against both the enhanced access to justice afforded to claimants in general by such procedures, and the protection from multiple litigation that such procedures offer to defendants.”18

3. Problems under the existing framework The Brussels I Regulation contains no specific rule dealing with the crossborder implications of the collective redress proceedings – and things have remained unchanged in the recast Regulation 1215 / 2012. The Commission recast Proposal of 14 December 2010 had, on the grounds of the great diversity existing between the legal treatment of collective redress in the procedural law of the various Member States, excluded collective redress proceedings, along with defamation and personality cases, from the envisaged abolition of exequatur,19 with a view to the eventual preparation of a 17 18

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Karayanni, this volume pp. 185 ff. Fentiman, Recognition, Enforcement and Collective Judgments, this volume, p. 107. COM (2010) 748, Art. 37(3)(b): “proceedings which concern the compensation of harm caused by unlawful business practices to a multitude of injured parties and

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specific instrument on cross-border collective redress. The omission of any reference in the recast Regulation – as indeed in the applicable-law instruments on contractual and non-contractual obligations (Rome I and Rome II Regulations) has called for a re-evaluation of the existing rules, their operation and possible fine-tuning in the short-term, and the advisability for law reform in the medium or long term. One may wonder whether Professor Muir Watt is right to allege that the Regulation is “in its present form ill-equipped to deal with the onslaught of aggregate claims, both in its provisions on jurisdiction and as far as the free movement of judgments and settlements is concerned”20 – and that the same could be probably said of the Rome I and II Regulations.

(a) Jurisdiction The Brussels I jurisdictional regime is, in principle, defendant-oriented.21 None of the jurisdictional grounds of the Brussels system can be used effectively for the consolidation of claims involving mass claims by multiple claimants based in different Member States – a fact that raises issues of fairness towards claimants and moreover entail procedural complications, for example with regard to evidence collection. Defendants must be protected, but turning the general jurisdictional rule of Art. 2 [Art. 4 in the recast] of the defendant’s domicile or seat into the exclusive rule for collective redress claims would probably be inadequate.22 The closest thing to a specific ground for collective redress might in fact arise with regard to lawsuits involving multiple defendants: Art. 2 [Art. 4 in the recast], combined with Art. 6.1 [Art. 8.1 in the recast], allows for co-defendants to be sued in the domicile or seat of one (“anchor”) defendant. This ground might empower claimants with considerable options in choosing a convenient venue: it all depends on how strong the anchor defendant’s anchor might be deemed. A cartel case presently pending before the European Court of Justice, where co-defendants strongly contest their

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which are brought by i. a state body; ii. a non-profit making organisation whose main purpose and activity is to represent and defend the interests of groups of natural or legal persons, other than by, on a commercial basis, providing them with legal advice or representing them in court, or EN 40 EN; iii. a group of more than fi fteen claimants.” Muir Watt, IPrax 2010, 111. Hess, this volume, p. 62. See e.g. Nuyts, this volume, p. 72.

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connectedness but a “single and continuous infringement” is alleged, might soon answer that question.23 The same case raises a question with regard to the effective reach of Article 5.3 [Art. 7.3 in the recast], which enables concurrent jurisdiction “in matters relating to tort, delict or quasi-delict” to the courts “of the place where the harmful event occurred or may occur”. It would appear that jurisdiction under 5.3 is based on a local act of breach and only covers acts committed within the territory of that state – an interpretation apparently based on the European Court of Justice case law and especially the Shevill case.24 Were we to follow that reasoning in cross-border collective redress proceedings where the defendant’s conduct caused damage to plaintiffs in several Member States, then all members of the plaintiff class would be able to centralize their collective claim only before the courts of the defendant’s domicile.25 This would, however, potentially disenfranchise members of a foreign class who could be reluctant to sue at the place of the defendant’s domicile – and such concerns have already led to protective jurisdictional regimes with regard, for example, to consumer claims. In the Hydrogen Peroxide case, the Court has been asked to determine if, for purposes of Art. 5.3, “the harmful event occurred in relation to each defendant and in relation to all heads of damage claimed or the overall loss in those Member States in which cartel agreements were concluded and implemented.” Recent European Court of Justice case law, notably e-Date and Martinez, where it has been held that the courts of the place “where the alleged victim has his center of interests” have jurisdiction for all damages caused, might provide an argument for consolidation.26 Art. 5.1 [Art. 7.1 in the recast], which provides for jurisdiction of the courts of the place of performance in “matters relating to a contract” can also be a useful tool for collective claims. The two problems that must be overcome for this to happen involve the characterization of the case as relating to a contract, as has been shown in the Henkel case,27 and the notion that jurisdiction must be provided individually, for each contract, at the place of its performance. As Arnaud Nuyts points out, both problems can be overcome: “related” does not necessarily mean that the actual parties to 23

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C-352 / 13, Cartel Damage Claims Hydrogen Peroxide SA (CDC) v Evonik Degussa GmbH, Akzo Nobel N.V., Solvay SA, Kemira Oyj, Arkema France, FMC Foret SA, Chemoxal SA, Edison SpA, referred to from the Landgericht Dortmund. C-68 / 93, Shevil v. Presse Alliance [1995] ECR I-415. Danov, The Brussels I Regulation: Cross-Border Collective Redress Proceedings and Judgments, (2010) 6 Journal of Private International Law, 368. C-509 / 09 and C-161 / 10. See the discussion in Nuyts, this volume, p. 77-79. C-167 / 00, [2002] ECR I-8111.

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the proceedings be parties to the contract; Henkel, a case involving preventive action by a consumer association, should not be seen as necessarily controlling other kinds of collective redress actions; and there is a trend towards “centralization” of jurisdiction over contracts cases. However, in the near future Art. 5.1 will probably exhaust its usefulness in bringing together claims over bundles of contracts performed in a given Member State.28

(b) Parallel proceedings and lis pendens This relative inability to tie a collective redress case to a single forum, especially given the ongoing proliferation of divergent national regimes for dealing with such claims in EU Member States, will often entail parallel proceedings. As noted by Arnaud Nuyts, parallel proceedings in a collective claim case not only go against the very notion of bundling together such claims but might also foster forum shopping to such an extent as to create a veritable regulatory competition between Member States seeking to attract revenue from the administration of mass claims.29 In the light of proliferating national systems, it is questionable whether the Brussels system of Art. 27-28 [Arts. 29-30 in the recast] giving priority on the court first seized can operate effectively.

(c) Recognition and enforcement Recognition and enforcement pose another set of issues. As Richard Fentiman correctly notes the effectiveness of collective judgments outside the court of origin is central to collective relief (“the first question the claimant’s advisers must address”) but also to potential defendants – who need both to assess their exposure to damages and to know whether any collective judgment or settlement is really binding on non-participant members of the class.30 Fentiman also points out to the elephant in the room: whereas much of our discussion concerns designing and managing European systems of collective redress, “the effect in Europe of a third-state collective award or settlement is … the issue which more than any other preoccupies practitioners”31 – in terms both of obtaining enforcement a third-state money judgment and of considering the extent such a judgment would preclude 28 29 30 31

Nuyts, this volume, pp. 74-75. Nuyts, this volume, p. 80. Fentiman, this volume, p. 85. Fentiman, this volume, p. 87.

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filing suit in a Member State court. The contrast – and stakes involved in the choice – between opt-in and opt-out systems, the former being favored by most in Europe whereas the latter being the staple of the American class action, probably aggravates both issues. Let us consider, for example, the ordre public exception of Art. 34.1 of the Brussels I Regulation [Art. 45(1)(a) in the recast]. In a forum which has adopted an opt-in system of collective redress or does not view favorably class actions, the ordre public exception might conceivably be triggered by a judgment from an opt-out system. At the same time, the European Court of Justice has, when given the opportunity, underlined its own authority to interpret – strictly – the concept of ordre public, with regard to Member State judgments.32 Even so, we must watch out for cases, especially involving third-state judgments, such as Adams v. Cape Industries Inc, where, as the English Court of Appeal put it “the amount of compensation [was] fixed subjectively by or on behalf of the plaintiff ”.33 Another question regards the preclusive effect of collective judgments, including collective settlements, under Art. 34.3 and 34.4 [Art. 45(1)(c) and (d) in the recast). Would such a judgment by the forum courts, or an earlier judgment by the courts of another Member State be regarded as “between the same parties” when the plaintiff ’s classes are not exactly identical? As Fentiman points out, “it is an inadequate response merely to impose the traditional model, designed for different circumstances, on collective redress. The proper response is to ask whether in such cases that model serves the objectives for which it was intended.”34 A certain degree of ambiguity nonetheless exists with regard to the legal status of court-approved settlements and especially collective settlements under Brussels I.35 There may be both fairness and technical difficulties in granting certain collective settlements the status of a court judgment. On the other hand, given that most collective claims end in settlement, it is imperative to deal with this issue.

(d) Applicable law Choice of law raises its own problems with regard to class actions. The discussion on applicable law appears to be stronger in the U.S., where a jurisdictional framework of sorts is already in place, especially since the 32 33 34 35

See e.g. C-420 / 07, Apostolides v. Orams [2009] I-3571. [1990] Ch 433, 467. Fentiman, this volume, p. 93. Fentiman, this volume, pp. 98-100.

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Class Action Fairness Act 2005.36 Applicable law is used strategically in the certification stage; we also heard complaints about the possibility of multiple laws being applicable to different classes of plaintiffs in a simple case. Even the idea of an “average law” apparently has its adherents across the Atlantic.37 In their conference presentations, Ralf Michaels and Louise Ellen Teitz gave us perceptive and critical presentations of U.S. choice-oflaw thinking, and how it is affected by the unique brand of U.S. judicial federalism and procedural institutions.38 Things appear, in principle, simpler in Europe, with the more formal choice-of-law rules of the Rome I and Rome II Regulations. As a general rule, tort claims are governed by the law of the country in which the event giving rise to the damage occurred (lex loci damni).39 Special rules for product liability and unfair competition refer, respectively, to the law of the country of habitual residence of the person sustaining the damage and to the law of the country where competitive relations or the collective interests of consumers are or are likely to be affected.40 This state of affairs makes conceivable the idea of a court applying several compensation laws to each group of persons sustaining the damage and led the European Parliament’s Reporter to recommend that a new rule be adopted, designating as applicable the law of the place where the majority of the victims are domiciled.41 This does not however appear to have convinced the Commission.42 Ralf Michaels, however, drawing on the American experience as well as the European state of play, expresses a moderate preference for a single applicable law with regard to the administration of a class action (for example, certification). With regard to the merits of the case, Michaels would not go that 36 37

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See e.g. Silberman, U. Penn. L. Rev. 2008. McCloud / Rosenberg, A Solution to the Choice of Law Problem of Differing State Laws in Class Actions: Average Law, (2011) 79 George Washington Law Review, pp. 374 ff. Teitz, The Worldwide Reach of US Class Actions: Extraterritorial Procedure (paper on fi le with author); Teitz, Complexity and Aggregation in the Choice of Law: An Introduction to the Landscape, (2009) 14 RWU L. Rev., pp. 1 ff. Regulation 864 / 2007, Art. 4. Regulation 864 / 2007, Arts. 5 and 6. European Parliament, Committee on Legal Affairs, Report on ‘Towards a Coherent European Approach to Collective Redress’ (2011 / 2089(INI), (Klaus-Heiner Lehne) 12 Jan 2012, A7-0012 / 2012, no. 27. COM(2013) 401, p. 14 (“the Commission is not so far persuaded that it would be appropriate to introduce a specific rule for collective claims which would require the court to apply a single law to a case. Th is could lead to uncertainty when this is not the law of the country of the person claiming damages”).

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far, but he would favor a strengthened role for the lex fori, when the claim is based on harmonized law (European derivative law as implemented in the Member States) or when the forum is either the defendant’s home or a significantly affected market in the case.43 Such an approach would allow a certain degree of homogeneity while taking account of both national and sectoral diversity with regard to the appropriate norms of applicable law.

4. Conclusions Which leads us to thoughts on future action. The need for a separate EU instrument on cross-border collective redress appears to be a matter of relative consensus among the experts participating in this project.44 Few if any regard the existing rules of the Brussels regime as adequate for complex or mass litigation. Yet only a small number seem to argue that aggregate litigation requires, or presents an opportunity, to reshape the Brussels jurisdiction system per se,45 and many would caution against rash action to reform a subject undergoing its own transformation. A separate instrument has apparently found strong resonance with most policy-makers, but by no means all. Academic work such as the present project can help – both in keeping the idea afloat and especially in helping achieve a successful instrument with well-thought solutions. The European regime for cross-border collective redress will – in the short to medium term – seek to coordinate, rather than unify, national mechanisms.46 It will also probably rely on sectoral instruments. The legislative initiatives and policy discussion in the field of competition law appear especially promising, as demonstrated in the papers of both Lia Athanassiou on competition policy and Michael Hellner on the private international law aspects of competition damages claims.47 At the same time there 43 44 45

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Michaels, this volume, pp. 138 ff. Hess, this volume, p. 67-68. Cf Muir Watt, IPrax 2010, 111: “[O]ne may wonder whether the difficulties which arise … are not a sign of an at least partial obsolescence of the whole European private international law model, insofar as it sets upon increasingly outdated conceptions of the dynamics, function, structure and governance requirements of litigation and adjudication.” Gorywoda, The Emerging EU Legal Regime for Collective Redress: Institutional Dimension and Its Main Features, this volume pp. 173 ff. Athanassiou, Collective Redress and Competition Policy, this volume, pp. 145 ff.; Hellner, Private International Law and Collective Redress: The Case of Antitrust Damages Claims, this volume, pp. 223 ff.

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is much to be made out of the developments with regard to consumer protection in the EU.48 Financial regulation is gradually following its own path, somewhat in parallel with competition law.49 The pull of US class actions and the control exercised by US regulatory authorities will have its own impact in that regard.50 In the light of recent EU instruments and legislative initiatives, such a regime will probably embrace non-judicial mechanisms for dispute resolution.51 Arbitration is already an important instrument in this endeavor, even though we seldom think of it in relation with either collective redress or a non-commercial context. In the U.S., where non-commercial arbitration is a common mechanism for dispute resolution, class arbitration is a reality.52 Professor Radicati gave us some interesting examples, including mass investment arbitration.53 We are also beginning to witness a proliferation of innovative mechanisms, both ad hoc and institutionalized. It could perhaps be fruitful for private international lawyers and regulation experts alike to study more closely the emerging practice of public internationallaw tribunals, as well as the institutions of investment dispute settlement, in dealing with their own exploding numbers of mass claims. A strong European initiative on this area will certainly have repercussions to the rest of the world: it might provide a favorable forum for claimants, predictability for global business and a convincing model for nonEuropean lawmakers. It might even nourish policy discussion in the United States, the birthplace of class actions, as well as of much early thinking about the regulatory function of private law and the strong potential for private enforcement of regulatory law. Moving beyond Europe, we have to look first into transatlantic cooperation, without neglecting other countries, some with a strong record in collective redress. India, for example, has its own strong tradition of what is called there “public interest litigation.” Israel provides an ongoing experi48

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Gonzalez / Anovero, Compensatory Consumer Collective Redress and the Brussels I Regulation, this volume; Poznow, Rethinking Collective Redress, Consumer Protection and Brussels I Regulation, this volume. See e.g. Corneloup, Rome II and the Law of Financial Markets, this volume, pp. 291 ff., who proposes a relevant-market rule not unlike those with regard to competition law under Article 6 of the Rome II Regulation. Kapetanaki, Transnational Securities Fraud Class Actions: Looking Towards Europe?, this volume, pp. 277 ff. See SEC(2011) 273 final, No 19. See e.g. Drahozal / Whittrock, Franchising, Arbitration and the Future of the Class Action, (2009) 3 Entrepreneurial Business Law Journal 275 ff. Radicati di Brozolo, Class Arbitration in Europe?, this volume, pp. 211-212.

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ment into the potential introduction of class actions in “our” part of the world. Eventually, discussions concerning cross-border collective redress should move from the academia to the drawing board and institutions with expertise on soft law making – building on the existing experience with the principles of transnational litigation. In the long run, much of the rationale for a Europe-wide treatment of collective redress will foster a more global initiative. The Hague Conference appears, in that regard, a truly convenient forum for discussion and international instruments. Collective redress can be an important tool for global governance – and a global understanding is needed for effective cross-border collective redress.

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How “evil” is forum shopping? For many, “forum shopping” is a term with disparaging connotations, indicating something “evil”. That is why various policies against forum shopping exist, both on a domestic and an international level.

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Yes, I would like to order:  Ferrari (ed.): Forum Shopping in the International Commercial Arbitration Context

August 2013. x, 458 pages. € 99.– Softcover: ISBN 978-3-86653-263-2 eBook: ISBN 978-3-86653-991-4 My Address

May a litigant pursue the most favorable, rather than the simplest or closest, forum? To what extent is forum shopping relevant in the international commercial arbitration context? The contributions published in this book, Date / Signature written by renowned authors provide answers to these and more questions. © sellier european law publishers

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As for the reasons adduced in justification of this anti-forum shopping stance, they include the assertion that forum shopping goes against the principle of consistency of outcomes, that it overburdens certain courts and creates unnecessary expenses.

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