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Article: World Class: The International Proliferation of Class Actions

November 01, 2013
Business Litigation Reports

A group expected to number in the millions sues Google for alleged privacy violations. Tourists sue a travel operator for putting them up in accommodations inferior to what was promised. 1700 plaintiffs seek damages for the meltdown of a nuclear power plant. These sound like the everyday stuff of the class action system in the United States, but these actions were brought in the U.K., Italy, and Japan respectively.

Some deem it the democratization of justice globally while others view it as exporting a weapon of mass destruction, but one thing about which there can be no disagreement: class action practice has established a beachhead in virtually every developed nation around the globe. Although most countries are relatively new to this form of litigation and are inching their way towards tailoring it to their cultures, the U.S. model of aggregate actions forms the bedrock from which other nations’ procedures are developing. Predictions are that there will be an increase in the adoption of class action procedures throughout the world in the next decade and that U.S. style class actions will continue to serve as the model for aggregate actions elsewhere.

Already, core principles of U.S. class action practice have taken root in a majority of international jurisdictions. Most nations allow these actions to be prosecuted by private individuals, as opposed to requiring a public official or other public organization to bring them; and most allow for the recovery of money damages. See Bassett, 2021: International Law Ten Years From Now: International Litigation: The Future Of International Class Actions, 18 Sw. J. Int’l L. 21 (2011). And although criticisms of the U.S. system abound—for example, objections to contingent fee agreements and binding those who do not opt-out—many components of U.S. procedure, including those, are finding their way into the procedures of other nations. Id. This is due, in some part, to active efforts by class action firms in the United States to make alliances with lawyers in other countries in an effort to promote our home-grown procedures to the world. Conferences are conducted annually where class action practitioners and hopefuls from around the world gather to meet each other, share information about burgeoning issues, and strategize.

Class actions did not originate in this country and did not even morph into their current embodiment until 1966 when Federal Rule of Civil Procedure 23 was amended to provide for class actions very much as we know them. And in the last 45 plus years, they have brought about justice on a mass scale in many cases, while also propagating certain injustices that are well-known to lawyers and businesspersons alike. Like any good thing, too much of it can be its own form of abuse, and class action practice has its share of “too much.” Nevertheless, as business has gone global, class actions have followed along in its wake, and those who conduct business or sell products or services abroad need to be aware of what they may face in other jurisdictions.

A complete discussion of the practices of every nation is beyond the scope of this article, but below are highlights from some of the countries where U.S. businesses are more likely to find themselves the target of consumer actions:

The European Union
Collective actions are comparatively new and historically underutilized in the EU, resulting in piecemeal and repetitive litigation in and across jurisdictions. In order to improve access to justice while simultaneously avoiding abusive litigation, in June 2013 the European Commission adopted a non-binding “recommendation” stating that within two years, all EU Member States should adopt mechanisms for “collective redress” which allow multiple claimants to seek relief on a collective basis and/or through a representative plaintiff. The Commission’s recommendation requests that Member States incorporate the following elements into their collective redress systems:

• Representative standing should be limited to non-profit making entities authorized by Member States to bring such claims. The objectives of these entities should align with the rights claimed to be violated, and they should have sufficient resources to handle the claim.
• The class should include only members who affirmatively opt-in.
• Claimants should be required to declare the source of their funding. Third-party funders should be prohibited from influencing procedural decisions, including on settlement, and should not be compensated on a contingency fee basis unless third-party funding arrangements are subject to regulation by a public authority.
• Member States should provide for evaluation at the earliest possible stage of litigation (and on the court’s own motion) as to whether conditions for collective actions are satisfied.
• There should also be some cursory early examination of the elements to eliminate manifestly unfounded cases.
• The parties should be encouraged both before and during litigation to settle.
• Member States should ensure that it is possible to disseminate information about the action in a manner that balances freedom of expression with a defendant’s right to protection its reputation, such as via a national public registry.
• Only compensatory damages should be permitted; punitive damages are discouraged.
• Losing parties should reimburse prevailing parties for necessary legal costs.
• A number of EU Member States already had implemented collective litigation procedures prior to the issuance of the Commission’s recommendation. Whether and to what extent those nations may revise their mechanisms (as well as whether additional states will enact class legislation) remains to be seen.

The United Kingdom
While the English Civil Rules allow a party to represent a class of claimants, that party can represent them only if they share the “same interest.” English courts have construed this requirement very narrowly, thereby limiting the utility of this rule. Aggravated and exemplary damages are rare in the UK; awards are more restrained and largely based on actual losses.

A more common type of collective action is the group litigation order (“GLO”). A GLO is not a representative action procedure; rather, similar to the United States’ Judicial Panel on Multidistrict Litigation, which leads to creation of “MDLs” where multiple parties bring the same claim in at least more than one federal jurisdiction, a GLO is a case management device for handling and coordinating multiple, independent claims. Any party to a claim may request a GLO, which may be granted if the claims presented give rise to common or related issues of fact or law. If granted, a single court will be assigned to manage the GLO and all claims will be transferred to the so-called “management court.” The management court is afforded great discretion and flexibility in managing group litigation, and charged with implementing a procedure which best serves the specific needs of a particular set of claims.

Where a judgment or order is issued in relation to one or more GLO issues, unless otherwise stated that judgment or order is binding on the parties to all other claims that are on the group register at the time of issuance. The management court may give directions as to the extent to which that judgment or order is binding on subsequently-added claims.

A draft Consumer Rights Bill provides for collective actions to be bought in relation to private competition claims. It reflects most of the requirements of the Commission’s recommendations and, importantly, permits opt-out as well as opt-in actions.

Germany has a number of procedures that allow representative action on claims concerning consumer protection and antitrust law. For example, German law provides for multiple claimants to join an action if their claims arise from the same transaction or occurrence, or if there is a common question of law or fact relating to all claims. Moreover, individuals may pool their interests for legal enforcement and assign those interests to a new entity who acts as the plaintiff in a court proceeding. There are, however, strict limitations on the use of such litigation pools. Finally, there are several organizations that have the authority to enforce consumer protection and unfair competition law.

Following the June 2013 recommendation by the European Commission for member states to adopt collective redress actions, the Green party initiated legislation in the German Bundestag calling for the introduction of broad class action rights for consumers. It was not voted on prior to the end of the term.

There is an important limitation, however, on Germany’s ability to adopt formal class action procedures. Germany’s constitution prohibits court judgments from having a negative preclusive effect on non-parties—thus raising the question of whether issues can be decided that will affect absent class members, that is, anyone other than what we think of in the United States as class representative. At least some commentators see this as an impediment to expanding class action procedures in Germany in the near future.

France’s Parliament is currently debating legislation that would allow consumer class actions (permitting non-consumer class actions is not under consideration). Under the proposed law, only nationally representative consumer associations (which excludes law firms) would have standing to sue any defendant in any line of business. The class action would permit compensation for harms (1) suffered by groups of consumers in similar or identical circumstances; (2) due to breach of contract; (3) in connection with the sale of goods or services; (4) due to anticompetitive practices under French or European law. The proposed law would only compensate consumers for economic losses; non-pecuniary damages fall outside the scope of the proposed bill.

The defendant against whom the action is filed has an obligation to inform and notify potential consumers of the existence of this claim. As currently written, the legislation provides for “opt-in” class actions, where consumers would only be members of the class if they affirmatively expressed their desire to join it. If they do not opt-in, class members may not share in any recovery but retain their right to pursue individual relief.

Under the current proposal, any contractual stipulation that would prohibit a consumer from participating in a class action is deemed null and void.

There is no robust or widely used formal “class action” mechanism in Japan. Instead, the predominant method for multiparty Japanese litigation is via joinder. Under Japanese law, claims may be joined where the rights or liability are common to more than one person or are based on the same or similar facts or law. Each party may sue or be sued as co-parties, and may appoint joint counsel. Judgments will not necessarily apply uniformly to all members of the group.

Japan’s Code of Civil Procedure permits plaintiffs to commence representative actions on behalf of multiple parties (with judgments that bind both the representative and the group of opt-ins he or she represents), but in practice representative actions are rarely used in Japan. Moreover, in certain areas, such as consumer cases under the Consumer Contract Act, the only available remedy—exercised by the “Qualified Consumer Organization,” which is certified by the Prime Minister—appears to be injunctive. Thus, there still are incentives to bring representative actions in Japan.

Following the meltdown at the Fukushima nuclear power plant, some 1,700 plaintiffs sought to file four class actions against the Tokyo Electric Power Co. (TEPCO), seeking 5.3bb Yen in damages and an injunction to return radiation to pre-meltdown levels. Those cases are still developing, and their status is uncertain: plaintiffs reportedly are reluctant to pursue lengthy and arduous litigation and are struggling to estimate and substantiate their losses; at the same time, TEPCO’s existence is threatened by litigation and clean-up costs. This uncertainty has revived a long-running debate as to whether to adopt more U.S.-style class action litigation procedures in order to compensate victims while not ruining defendants.

Russia has permitted formal “class actions” since 2009, under Chapter 28.2 of the Russian Commercial Procedural Code. These are actions brought by a legal entity or an individual, for itself and/or on behalf of a minimum of five other persons in similar legal relationships, to protect a violated or disputed right arising out of those relationships. Class actions may be filed in relation to corporate disputes, capital market disputes or other commercial disputes. Consumer class actions are not yet permitted.

The class action regime set up in 2009 has features of both opt-in and opt-out procedures. Once a claim is classified as a class action, all parties in the same legal relationship as the claimant should be notified. Findings are binding on all of those individuals, but to obtain benefits one must affirmatively join the suit. The number of claims filed pursuant to Chapter 28.2 is not yet significant. The new class action regime has not received much enthusiasm in the country.

Even before 2009, Russian law accepted group actions and representative actions. Group actions may be filed when multiple claimants have similar claims against the same defendant(s). These were essentially independent actions heard in the same proceeding. A representative action is an action filed by the government or a noncommercial organization, generally seeking a declaration that certain conduct is illegal for the benefit of a large group of the general public.

Class actions have been prevalent in Australia since a 1992 amendment to the Federal Court of Australia Act (FCA). The amendment introduced the notion of “representative actions.” Product liability cases dominate the class action landscape in Australia, with some other examples of types of class actions including consumer fraud, securities, and antitrust law. In 2012, PricewaterhouseCoopers (PwC) and other defendants settled an Australian securities class action for $203,000,000 USD, the biggest class action settlement in Australian history.

Australia is said to be very accommodating of class actions, even more so than the United States. This results from the fact that there is no initial certification procedure nor a requirement that common issues predominate over individual ones; Australian rules allow for the determination of issues common only to subgroups—or even individuals alone—as part of the class action. There is also a growing litigation funding industry. Even so, reformers are currently calling for the adoption of an opt-in system, cy pres damages and the reversal of the loser pays principle. The states of Victoria and New South Wales have also now adopted class action procedures nearly identical to the Australian Federal provisions.

There are three threshold requirements to commence a class action:
• seven or more persons must have a claim against the same person;
• the claims must arise out of the same, similar or related circumstances; and
• the claims must give rise to at least one substantial common issue of law or fact.

Suits under the CCA however are opt-in. Once commenced, class actions in Australia continue until resolved or the court orders the discontinuation of the class form. Settlements must be approved by the court.