Collective Redress Mechanisms: the Danish Perspective and the EU Context

21. August 2007

Imagine a telephone company which has billed call rates incorrectly for a period of time – i.e. the standard contract terms for maybe thousands of consumers has been violated. As a result, a large group of customers is eligible for refunds – if potentially only a minor refund.

However, it is unlikely that the individual consumer will go through the hassle of costly and lengthy proceedings merely to claim a small amount of money. As a result, the claim is usually abandoned.

Yet consumers can join uniform claims through a system of collective redress. Collective redress is a special type of procedure prepared with a view to join several, and usually large numbers, of uniform claims in the same proceedings. Collective redress tools will be introduced into Danish law 1 January 2008 which could make the scenario sketched above one of the past.

As many European countries are in the process of implementing collective redress mechanisms into national law, the EU Commission is currently looking into the possibility of adopting similar tools on a Community level in order to improve dispute resolution mechanisms for consumer complaints.

The interest in collective redress mechanisms is evident from the Commission’s 2007-2013 Consumer Policy Strategy which makes the improvement of enforcement and redress facilities a key priority area. To this effect, the EU Commission for Consumer Protection recently hosted a brainstorming event in Leuven to collect thoughts and experiences from the EU member states as a kick-off to a more extensive debate about possible uses of consumer complaint resolution methods in Community law.

What can collective redress do?

The extended possibility of handling large groups of claims enhances consumer protection by adding practical impact to existing legislation.

There are essentially two types of collective redress: The opt in model and the opt out model.'

The opt in model proposed requires consumers to “join” a suit actively to claim damages. The main advantage of this model is that is it obvious on whom the judgment will have a binding effect. The legal force of the judgment, in other words, is clear from the beginning.

The opt out model, on the other hand, automatically includes all affected consumers in a lawsuit. It requires consumers to opt out of a pending lawsuit if they do not wish to participate. The advantage of this resolution method is that this kind of procedure usually is more effective and economical.

It takes a group representative to present collective claims in court. The identity of the group representative may vary from one country to another. Likewise it depends on the model used. In Denmark, a group representative may be a member of the group of consumers who bring the action or a private association if the action falls within the scope of the objectives of the association. Finally, a public authority authorized to this effect may also bring such redress actions.

The opt out resolution method, at least in the Danish context, can until further notice only be employed by the Danish Consumer Ombudsman, a public institution. Opt in actions, on the other hand, may potentially be a legal means available also to consumer and interest organisations.

The access to such redress resolutions also means that the Consumer Ombudsman is now able to help consumers get their money back – something which is usually outside the Consumer Ombudsman’s field of competence due to the nature of Danish consumer law.

Collective redress in Danish law

In 2005, the Standing Committee on Procedural Law (Retsplejerådet) submitted a report on proposals for the introduction of collective redress mechanisms into Danish law which could add another tool to the national enforcement regime. The Consumer Ombudsman was appointed group representative with the competence to conduct joined lawsuits pursuant to the opt out model.

See the press release concerning the report on collective redress options from 2005

While the access to bring collective actions pursuant to the opt in model is open to members of the suit and private institutions, only the Consumer Ombudsman can bring actions according to the opt out model. This owes to the fact that public authorities in some respects are bound by obligations of professional secrecy and impartiality.

A number of conditions apply to collective redress suits. The main condition is that claims are subject to Danish jurisdiction although they may be raised by consumers from other EU member states. Second, collective redress must be deemed the best procedural way to examine the claim. The court decides whether that is the case. Finally, the claims need not be completely identical; yet they must arise from the same factual circumstances and the same legal basis.

The Consumer Ombudsman is currently working on an overall procedure on how to approach future redress actions.

The Leuven brainstorming event

The current mechanisms endorsed on Community level to resolve consumer complaints include the establishment of European Consumer Centres Network and the Alternative Dispute Resolution Schemes. However, these dispute resolution schemes are not always sufficient as their effectiveness rely on the traders’ goodwill rather than law.

With the European Small Claims Procedure, with effect from 2009, the EU Commission has adopted a solution which will speed up and reduce the costs of litigation for claims not exceeding € 2000. Yet other collective redress measures could come in handy to fill some of the current gaps which exist between national legislation and EU regulations.

The crux of the matter is that more effective civil law tools are needed to regulate cross-border transactions. There is a gap between rights granted by civil law and the enforcement mechanisms available. In brief, these legislative means do not at present help consumers presenting claims that are individually ineligible for action.

In her closing remarks on the conference, the Director of Consumer Protection Directorate, Agne Pantelouri emphasized the usefulness of the discussion and that the Commission would take the proposals launched into consideration when assessing the potential need and uses of collective redress mechanisms in Community law.

Meanwhile, the Consumer Ombudsman continues to take active part in discussions on the future use of collective redress resolutions, and plans to participate in various seminars, conferences and follow-up meetings in Europe over the next couple of months.

 

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