Class Actions In Europe: Reality Or Myth?

Contents Introduction From the Practice Class Actions in Europe: Reality or Myth? The Example of France Limited Room for Lucrative Damage Claims or Suitable Collective Redress Under French Law The Current Trend Toward Compensation for "Information Asymmetry" Between the Plaintiffs and Defendants in Damage Claims and a More Sophisticated Approach Toward Technical Litigation Collective Redress in Matters Involving Injury Suffered by a Wide Range of Victims About the Authors Introduction From the Practice Chair For a number of years now, U.S. class-action lawsuits have been watched from European shores with a fair degree of interest and trepidation, as both a promise and a threat; not surprisingly, the issue has been highly controversial in Europe. Recent developments in France have now made it possible to imagine that class actions may soon become a regular part of the French legal landscape, although it appears unlikely that they will (ever) take on proportions similar to those in the United States. This White Paper, the first in a series of articles to be published by Jones Day addressing the issue of class actions in Europe, examines the current situation in France and the prospects for future mass litigation.

As co-chair of Jones Day's International Litigation & Arbitration Practice, I am particularly pleased to see collaborative writing from Jones Day's authorities on Antitrust & Competition Law (Eric Morgan de Rivery, Olivier Cavézian), Government Regulation and Environmental, Health & Safety (Françoise Labrousse), and Capital Markets and Securities (Linda Hesse), all in the Firm's Paris Office. Brief biographies for each may be found at the end of this White Paper .

For me, this is further proof that Jones Day is always able to tap into a deep well of experience offered by lawyers from different practices and nationalities to provide meaningful insight on multidisciplinary subjects such as this.

Comments are welcome.

Michael W. Bühler, partner and co-chair of the Firm's International Litigation & Arbitration Practice, Paris.

Class Actions in Europe: Reality or Myth? The Example of France Structural hurdles in the French legal system, such as the difficulty faced by claimants attempting to collect evidence, the principle of strict compensation for injury, and the impossibility for victims to call upon a plaintiffs' bar, have always been a significant obstacle for groups of individuals seeking to take an active part in damage litigation in France.

Nevertheless, the improved organization of consumer associations, together with a growing desire to bypass these obstacles (or at least reduce their impact), has at long last enabled the development of collective redress in France. Specifically, these changes have taken the form of a more appropriate use of existing procedural tools to compensate for the "information asymmetry" between plaintiffs and defendants in damage claims, as well as a more sophisticated approach by judges to highly technical legal areas, such as antitrust, securities, and the environment.

With regard to antitrust, France, like most other EU Member States, can produce few examples of antitrust damage claims. Consequently, the Commission of the European Union (the "Commission") has been resolutely pushing for the development of collective redress in antitrust and consumer matters. Indeed, the Commission's recent actions in this area are carried out primarily by its Directorate General for Competition, which is currently working on a directive on damages actions for infringement of EU competition rules, and by its Directorate General for Health and Consumers, which issued a Green Paper on Consumer Collective Redress in November 2008.

In the field of securities, procedures for redress available to investors under French law are limited to approved investor organizations acting on behalf of a pool of investors, as opposed to individual shareholders (action dans l'intérêt collectif ), or, alternatively, on behalf of individual holders for losses they suffered directly (action en représentation conjointe). Still, two recent cases, the Sidel case in 2006 and the Regina Rubens case in 2007, illustrate what appears to be a move by the French courts toward recognizing proper shareholder claims for damages.

Finally, as far as environmental law is concerned, only group actions restricted to certain environmental associations are currently possible in France. It is generally acknowledged, however, that the adoption in 2005 of Law No. 2005-265, which created the Charter for the Environment, and in 2008 of Law No. 2008/757, which deals with environmental liability, has enhanced the development of larger group actions and that this also may represent a path toward the introduction of proper class actions in the future.

All in all, these recent initiatives in matters involving injury suffered by a wide range of victims have led to serious consideration, for the first time in decades, of the introduction of class actions into the French legal system.

Following years of discussion without significant progress, the introduction of class actions into the French legal system is now back on the political agenda. In 2007, President Sarkozy launched a project whose aim was to introduce a class-action system for consumers. And while the various draft bills prepared by the Ministry of Justice have been postponed, the latest is expected to be released before the end of 2009.

Be that as it may, the current context supporting the development of collective redress in France—and in Europe as a whole—is expected to have a positive influence on judges facing damage claims in matters involving injury suffered by a wide range of victims. Indeed, judges may be tempted to take the lead in an area where politicians have thus far failed to meet consumers' expectations.

Limited Room for Lucrative Damage Claim s or Suitable Collective Redress Under French Law France has no tradition of introducing consumer claims and litigating on one's own account. This is due primarily to the existence of approved consumer associations, which are officially designated by the government as representatives of consumers' general interests.1 But there are also several structural hurdles in the French legal system that deter consumers from taking an active part in damage litigation. These are related mainly to the difficulty of gathering and presenting evidence, the principle of strict compensation for injury, and the prohibition against canvassing for victims under French law.

The first major hurdle is the difficulty faced by a claimant attempting to collect the evidence necessary to prove both the existence of a wrongdoing and the extent of his or her suffered injury. Indeed, the claimant has limited access to useful information, which is generally in the hands of the defendant, provided he or she is even aware of its existence. Moreover, estimating and substantiating the injury for which compensation is claimed can be extremely difficult, not just for the claimant but for the judge as well.

Another factor discouraging damage claims in France is the principle of strict compensation for injury, a cornerstone of French law. In the French system, judges are required to determine the exact amount of the actual harm caused by a wrongdoing and are allowed to grant damages to claimants only to that extent. As a result, when balancing the costs and benefits of a damage claim, a potential claimant, such as a consumer, often comes to the conclusion that the cost of pursuing the claim will exceed any potential compensation, particularly if the injury personally suffered was not substantial. This is reinforced by the fact that a claimant normally receives only a lump-sum compensation for his legal costs, which often fails to cover the full amount of his actual expenses.

Finally, victims in France do not directly form plaintiffs' classes before the courts. Given that there is no such thing as a plaintiffs' bar in France and French legal rules prevent lawyers from canvassing for victims, it is difficult for a victim to bring a claim before a court. A potential claimant may not even know that there is litigation in progress in which he or she could claim damages.

The factors hindering efficient collective redress in France can be seen in the www.Classaction.fr case. In 2005, a group of lawyers tried to introduce a class-action type of procedure before a national court in France through its web site, classaction.fr. The group began canvassing for victims to organize a procedure. In June 2005, however, the Lille civil court (Tribunal de grande instance) issued an injunction requiring the group to remove from its web site any advertising violating the principle prohibiting canvassing for victims of wrongdoing.2 In December 2005, the Paris civil court (Tribunal de grande instance) decided on the merits of the case that the offer of services proposed by Classaction.fr constituted illegal canvassing, and it concluded that the practices in question (which extended beyond canvassing to include such things as whether the information provided to the consumer was sufficient) had harmed consumers' collective interest.3 The complaint had been lodged by UFC-Que Choisir, the main approved consumer association in France. In September 2007, the Paris civil court also dismissed 699 plaintiffs in a litigation in which damages were claimed against film studios that had put anti-copy systems on DVDs. The court, observing that these 699 consumers had been illegally canvassed through the Classaction.fr web site, dismissed them all, pursuant to the principle of frausomnia corrumpit. 4

The Current Trend Toward Compensation for "Information Asymmetry" Between the Plaintiffs and Defendants in Damage Claims and a More Sophisticated Approach Toward Technical Litigation The general view is that the French legal system does not facilitate, and may completely prevent, the...