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European Commission consults on class action lawsuits

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Consumers across the European Union could be given new powers to join forces to sue a business under plans announced by the European Commission today. Class action lawsuits could be publicly funded under the proposals.

The Commission's Green Paper on Consumer Collective Redress (pdf) proposes new ways of dealing with situations where large numbers of consumers have been harmed by a single trader's practice which is in breach of consumer law.

Consumer Commissioner Meglena Kuneva said that many such cases currently fall through a hole in the justice system.

“Consumers who are victims of illegal activities, such as overcharging, misleading advertising or outright scams, have a right to compensation," she said. "Currently, particularly where there are small scattered claims, this right is often theoretical because of the obstacles to exercising it in practice.

"There is a justice gap, a welfare gap and there are black holes in our redress system that is leaving consumers with nowhere to go. The present situation is clearly unsatisfactory. We must find a way to make the basic right to consumer redress a reality for more people," said Kuneva.

The green paper acknowledges the current action in the UK against banks accused of imposing excessive charges on thousands of customers whose accounts became overdrawn. It also cites an EC-led enforcement action against ring-tone sellers: around 60 per cent of websites checked had the obligatory pre-contractual information but hid it or presented it in small print. Ads that claimed to offer 'free' ring-tones resulted in unexpected payments or subscriptions, it says.

The green paper identifies barriers to effective consumer redress in terms of access, effectiveness and affordability and presents various options to close the gaps identified.

The most radical of the options for reform is a judicial collective redress procedure. The Commission says this option "should avoid elements which are said to encourage a litigation culture such as is said to exist in some non-European countries, such as punitive damages, contingency fees and other elements".

It suggests cutting the costs of action by exempting collective actions from court fees or capping legal fees. Consumer bodies could also bring actions and enjoy a share of the compensation to cover their costs, it suggests. A bank could grant a loan to cover the cost of court proceedings. "Another solution could be public funding by the Member States," it suggests.

The green paper excludes collective redress for victims of competition law infringements, which is the subject of a previously-published white paper.

Reforms to restrictions on class actions in England and Wales were proposed in July. Following an investigation of current procedures, the Civil Justice Council reported that more class actions in English courts would benefit consumers, small businesses and employees.

Comments on the green paper can be submitted until 1 March 2009.

Copyright © 2008, OUT-LAW.com

OUT-LAW.COM is part of international law firm Pinsent Masons.

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