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European Commission"Consultation on collective redress"Avenue de Bourget 1-3B-1140 BrusselsBelgium

Email: EC-collective-redress@ec.europa.eu

27 June 201

Dear Sir,

European Commission public consultation on collective redress

The Working Group of the International Bar Association's Antitrust Committee hereby enclosesfor your consideration a submission responding to the public consultation on collective redress.

The IBA's Antitrust Committee is grateful for this opportunity to submit the views of its WorkingGroup on this important topic and appreciates the willingness of the European Commission tolisten and respond to its comments and suggestions.

The Co-chairs of the Working Group and Officers of the Antitrust Committee of the IBA wouldbe delighted to discuss the enclosed submission in more detail, should that be of interest.

sil Campbell'Co-ChairAntitrust Committee

Encl 1

cc Greg McCurdy - Co-chair, Antitrust CommitteeJohn Pheasant - Co-chair - IBA Working GroupIngo Brinker - Co-chair - IBA Working Group

INTERNATIONAL BAR ASSOCIATION

ANTITRUST COMMITTEE WORKING GROUP ON THE EUROPEAN COMMISSION’S PUBLIC CONSULTATION: TOWARDS A COHERENT

EUROPEAN APPROACH TO COLLECTIVE REDRESS

This submission is made to the European Commission on behalf of the Working Group of the Antitrust Committee of the International Bar Association (‘Working Group’) that has been formed in response to the Commission’s public consultation on collective redress. This Working Group has previously commented on the European Commission's Green and White Papers on Competition law Damages Actions. The Working Group appreciates this opportunity to make a submission to the Commission in response to this new consultation on collective redress and hopes to contribute constructively to this debate.

The IBA’s Antitrust Committee brings together antitrust practitioners and experts among the IBA’s 20,000 individual members from across the world, with a unique blend of jurisdictional background and professional experience. The Working Group’s comments and recommendations draw on the members’ experience of competition law and practice within the European Union and elsewhere, both under the EU competition law rules and the national competition laws of Member States and other countries. The members of the Working Group are set out in Annex A.

This submission aims to focus on questions from the European Commission's consultation document which raise competition-law-specific issues and does not address questions of general policy. For comments on these general policy questions, we refer the European Commission to the submission made on behalf of the Multi-Jurisdictional Class Action / Collective Redress Working Group of the IBA. The latter working group, which is litigation based with a specific focus on cross border class actions and other collective redress remedies, has prepared a separate submission.

QUESTION 1 WHAT ADDED VALUE WOULD THE INTRODUCTION OF NEW MECHANISMS OF COLLECTIVE REDRESS (INJUNCTIVE AND/OR COMPENSATORY) HAVE FOR THE ENFORCEMENT OF EU LAW?

1. As a general proposition, the Working Group believes that the introduction of consistent/harmonized mechanisms of collective redress would improve and enhance the private enforcement of EU competition law. This is especially important in the context of competition law, since the conduct giving rise to potential claims typically affects claimants in multiple Member States and the implementation of consistent collective redress regimes would minimize the prospect of inconsistent outcomes in multi-jurisdictional competition law cases.

- 2 - 2. The implementation of consistent regimes would likely improve the ability of courts to

coordinate the management of multi-jurisdictional cases, thereby reducing costs (both private and public) and improve the predictability of outcomes. In the competition law context, increasing the consistency of outcomes would encourage European customers (whether individual consumers or corporate claimants) to engage in cross-border commerce, as they would be uniformly compensated for any harm incurred as a result of anti-competitive conduct that infringes EU laws.

3. By way of example, countries such as Australia, Canada and the US have had formal mechanisms of collective redress for almost two decades, through which plaintiffs can obtain both injunctive and compensatory remedies. The experience in these jurisdictions, with respect to claims based on violations of competition law, is that collective redress mechanisms can facilitate compensation for those who have suffered harm and enhance public enforcement efforts if designed effectively. There is no reason to believe that the implementation of a well-designed collective enforcement regime would not have a similar effect in the EU.

4. The introduction of class action procedures in Australia and Canada followed a long periods of review and consultation,1 and was justified by two policy objectives, namely:

• improving access to justice by providing a remedy for persons whose loss is small and not economically viable to recover through an individual action; and

• increasing the efficiency of the courts by allowing issues which are common to several plaintiffs to be dealt with in one proceeding, rather than many individual actions.2

These objectives are similar to those identified by the EC in the consultation document.3

5. Whilst not an original objective, there is a belief that collective redress mechanisms may enhance the enforcement of competition laws by providing an important deterrent role. Some commentators view collective redress mechanisms as taking the place of public authorities who might not take enforcement action due to budgetary or political restrictions.4

6. In attempting to increase access to justice for consumers and businesses who may have sustained losses as a result of violations of competition and other laws, care must be taken to ensure that any changes to the collective redress regime include appropriate checks and balances. In many jurisdictions, reforms aimed at facilitating collective enforcement actions have created a thriving and successful class action 'industry'. While the availability of collective redress mechanisms may increase access to justice, it must be understood that these mechanisms become as much a

1 The Attorney-General referred the question of class action reform to the Australian Law Reform Commission ('ALRC')

in 1977, but it took until 1988 for the ALRC's Report to be tabled in Parliament. The ALRC's Report formed the basis of Part IVA: S Stuart Clark & Christina Harris, 'The Push to Reform Class Action Procedure in Australia: Evolution or Revolution?' (2008) 32(3) Melbourne University Law Review 775, 780.

2 Commonwealth, Parliamentary Debates, House of Representatives, 14 November 1991, 3174-5 (Michael Duffy, Attorney-General); Law Reform Commission, Grouped Proceedings in the Federal Court, Report No 46 (1988) 34, 146; Dorajay Pty Limited v Aristocrat Leisure Limited [2005] FCA 1483, [98] (Stone J). See for example, the Ontario Class Proceedings Act, 1992, S.O. 1992, c.6 and the Law Society Amendment Act (Class Proceedings Funding), 1992, S.O. 1992, c.7, (which provides a funding mechanism for class actions) and related regulations. 3 European Commission, 'Public Consultation: Towards a Coherent European Approach to Collective Redress'

(Working document No SEC(2011)173,EuropeanCommission,4February2001)2-3 <http://ec.europa.eu/dgs/health_ consumer/dgs_consultations/ca/docs/cr_consultation_paper_en.pdf>.

4 Barry Lipp, 'Mass Tort Claims Under the Federal Court of Australia Act: Justice for All or Justice Denied?' (2002) 28 Monash University Law Review 361, 364.

- 3 - business activity as a means of righting wrongs or serving the public interest.

7. A well-balanced mechanism of collective redress in the EU could increase access to justice and facilitate recovery by individuals and businesses who might otherwise have no viable means of seeking compensation. This is especially true in the context of claims arising from alleged violations of competition laws, where the harm suffered by claimants is often too small to justify bringing an independent claim. However, care needs to be taken to ensure that any new EU collective redress mechanisms do not simply increase the volume of private litigation – rather the focus should be on encouraging the bringing of meritorious actions, while simultaneously discouraging frivolous litigation (for example, strike suits5) brought primarily to benefit class counsel. The experience in other jurisdictions demonstrates that, in practice, an appropriate balance is difficult to achieve.

QUESTION 2 SHOULD PRIVATE COLLECTIVE REDRESS BE INDEPENDENT OF, COMPLEMENTARY TO, OR SUBSIDIARY TO ENFORCEMENT BY PUBLIC BODIES? IS THERE NEED FOR COORDINATION BETWEEN PRIVATE COLLECTIVE REDRESS AND PUBLIC ENFORCEMENT? IF YES, HOW CAN THIS COORDINATION BE ACHIEVED? IN YOUR VIEW, ARE THERE EXAMPLES IN THE MEMBER STATES OR IN THIRD COUNTRIES THAT YOU CONSIDER PARTICULARLY INSTRUCTIVE FOR ANY POSSIBLE EU INITIATIVE?

8. As a general proposition, the majority of the Working Group believes that private collective redress should be independent of public enforcement and that there should be no coordination between them. This is because private collective redress, which is typically compensatory in nature, fills a fundamentally different role compared with public enforcement, which is governed by the objectives specified in the relevant authority's statutory mandate and policy guidelines. In the context of competition law, enforcement agencies typically have a broad public interest mandate to protect the competitiveness of markets within their jurisdiction.

9. Linking private and public enforcement together risks compromising the integrity of enforcement agencies and their public policy mandate. It is for this reason that the private and public enforcement streams have traditionally been kept separate in those jurisdictions that have collective redress mechanisms applying to losses arising from violations of competition laws.

10. In most jurisdictions where collective redress mechanisms exist, competition authorities are either restricted in their ability to coordinate their efforts with private claimants (for example as a result of statutory confidentiality protections afforded to information obtained by the authority) or have decided not to do so as a matter of policy. In many cases, the reluctance of competition law enforcement agencies to coordinate with or assist private claimants is driven by the desire to protect the effectiveness of their immunity/leniency programs or their investigative and adjudicative processes.

11. The public policy interest in preserving immunity/leniency programs, which are one of the most effective tools available to competition law enforcement agencies, has been widely acknowledged by the Commission, and foreign enforcement agencies6. Any

5 A strike suit is a lawsuit brought for the purpose of reaching a settlement predicated on the basis that it would be

less costly for the defendant to settle than to incur the legal costs of defending the case on its merits. 6 Australian Securities And Investments Commission v P Dawson Nominees Pty Ltd and Others (2008) 247 ALR 646, 654 (Heerey, Moore & Tracey JJ). For example, see the briefs filed by the various amici curiae with respect to the issues raised by the disclosure of information in files of competition authorities to civil plaintiffs in Re: Vitamins Antitrust Litigation No. 99-197 (TFH) MDL No. 1285 (April 4, 2002).

- 4 - formal coordination/cooperation between competition law enforcement agencies and private claimants would seriously undermine the integrity of existing immunity/leniency programs, as potential applicants would have to weigh the benefits of obtaining immunity/leniency against the consequences of having information provided to the authority turned over to private claimants for use in civil damages actions.

12. In the competition law context, another major issue raised by the possible interaction between private and public enforcement mechanisms results from the fact that many competition authorities have significant investigatory powers (these can include the use of search warrants/dawn raids and wire-taps) and/or the ability to compel the production of information (for example by way of court order to produce documents or answer questions under oath, etc.). In many jurisdictions, competition law enforcement agencies have the ability to obtain information that goes far beyond what would typically be produced in a civil action (even in jurisdictions that provide for broad discovery powers). While these broad investigatory powers are justified in the context of an enforcement agency fulfilling its delegated public interest mandate, this justification does not necessarily extend to sharing this type of information with private claimants.

13. The majority of the Working Group feels quite strongly that private collective redress must be entirely independent of competition law enforcement by public bodies, in order to avoid public policy goals being compromised.

QUESTION 3 SHOULD THE EU STRENGTHEN THE ROLE OF NATIONAL PUBLIC BODIES AND/OR PRIVATE REPRESENTATIVE ORGANISATIONS IN THE ENFORCEMENT OF EU LAW? IF SO, HOW AND IN WHICH AREAS SHOULD THIS BE DONE?

14. One possible area where it would make sense to strengthen the role of private representative organizations is with respect to giving them standing before national courts in Europe in cross-border cases. That being said, care should be taken to ensure that any representative organization given standing is a “legitimate” group and not an entity created for the purpose of bringing a private damages claim or serving as a professional litigant. Please refer to our answers to Questions No. 13 and 14 below for further comments on these points.

QUESTION 4 WHAT IN YOUR OPINION IS REQUIRED FOR AN ACTION AT EUROPEAN LEVEL ON COLLECTIVE REDRESS (INJUNCTIVE AND/OR COMPENSATORY) TO CONFORM WITH THE PRINCIPLES OF EU LAW, E.G. THOSE OF SUBSIDIARITY, PROPORTIONALITY AND EFFECTIVENESS? WOULD YOUR ANSWER VARY DEPENDING ON THE AREA IN WHICH ACTION IS TAKEN?

15. The EU subsidiarity principle set forth in the Treaty of Maastricht provides that the EU shall act only if and in so far as the objectives of the proposed action cannot be sufficiently achieved by the Member States alone, but can be better achieved at EU level. Accordingly, to comply with the EU subsidiarity principle, a European collective redress system – which would impact on domestic civil procedure rules – would need to be introduced by means of a European directive rather than a self-executing EU regulation which, in the absence of any domestic implementing legislation, could actually conflict with existing domestic rules and create serious interpretative uncertainties which could not be easily resolved by the courts. Moreover, the

- 5 - implementation of the European directive into domestic rules making it more compatible with the legal framework of the individual Member State would both recognise the role of the Commission in introducing binding rules that would not otherwise be achieved at national level (and thereby comply with the subsidiarity principle) and maintain the legal framework within each Member State.

16. The EU proportionality principle states that the involvement of the institutions must be limited to what is necessary to achieve the objectives of the Treaties. We believe that this principle would represent, in the context of the collective redress system, a barrier to the introduction of punitive damages, which have created significant issues in particular in the United States. In fact, given that a sanction under European law is lawful only if it is necessary and proportionate with respect to the objectives to be reached, the introduction of punitive damages seems unlikely and undesirable in a potential intervention by the Commission on collective redress. Therefore, such intervention, if aimed at introducing compensatory damages, should contemplate a cap on the amount of damages which can be awarded to the plaintiffs.

17. The effectiveness principle has historically generated the most tension between national procedural responsibility and autonomy. Once again, it is our belief that the use of a directive could ensure compliance with the effectiveness principle without risking mass rejections by the legal systems of Member States. For additional remarks and a possible combination of binding and non binding measures, please see our answer to Question No. 6 below on this matter.

QUESTION 5 WOULD IT BE SUFFICIENT TO EXTEND THE SCOPE OF THE EXISTING EU RULES ON COLLECTIVE INJUNCTIVE RELIEF TO OTHER AREAS; OR WOULD IT BE APPROPRIATE TO INTRODUCE MECHANISMS OF COLLECTIVE COMPENSATORY REDRESS AT EU LEVEL?

18. As a general proposition, injunctive relief is used to implement a behavioural remedy, while a compensatory regime is intended to provide redress for harm suffered and/or ensure that wrongdoers are not able to profit from their unlawful actions. In short, while there may be some practical overlap, these two mechanisms are not designed to provide the same type of relief and, accordingly, the Working Group does not believe that an extension of the scope of existing EU rules on collective injunctive relief is a substitute for an EU mechanism for compensatory redress.

19. For this reason, to the extent that the EU believes that some form of financial compensation is an appropriate remedy for violations of competition law, the Working Group believes that introducing a suitable compensatory redress regime at the EU level is a sensible option.

QUESTION 6 WOULD POSSIBLE EU ACTION REQUIRE A LEGALLY BINDING APPROACH OR A NON-BINDING APPROACH (SUCH AS A SET OF GOOD PRACTICES GUIDANCE)? HOW DO YOU SEE THE RESPECTIVE BENEFITS OR RISKS OF EACH APPROACH? WOULD YOUR ANSWER VARY DEPENDING ON THE AREA IN WHICH ACTION IS TAKEN?

20. As a practical matter, the appropriate approach to this issue would likely include a combination of binding and non-binding measures.

21. With respect to the procedural rules for collective redress actions and the execution of the judicial decisions, a binding approach would promote the effectiveness of European law. This is especially the case with respect to competition law claims,

- 6 - which typically impact markets in multiple jurisdictions. However, rather than using a regulation, which has the advantage of being immediately enforceable in all Member States simultaneously, it would likely be preferable for the Commission to adopt a directive. This is because the use of a directive respects the differences between Member States and allows them to implement any required changes in a way that best suits their existing civil procedure regimes.

22. In addition to any binding measures that may be introduced, a set of supplemental guidelines or best practices would likely be useful. If the Commission were to decide not to introduce binding measures, the use of non-binding guidelines or best practices could serve as the foundation for the development of harmonised approaches to collective redress actions where appropriate. However, as with any non-binding measures, there would still remain the possibility of inconsistencies between jurisdictions, which can encourage forum shopping.

QUESTION 7 DO YOU AGREE THAT ANY POSSIBLE EU INITIATIVE ON COLLECTIVE REDRESS (INJUNCTIVE AND/OR COMPENSATORY) SHOULD COMPLY WITH A SET OF COMMON PRINCIPLES ESTABLISHED AT EU LEVEL? WHAT SHOULD THESE PRINCIPLES BE? TO WHICH PRINCIPLE WOULD YOU ATTACH SPECIAL SIGNIFICANCE?

23. As a bare minimum, the establishment of a set of common principles for collective redress could provide a common policy framework that Member States could use to harmonise their approaches to determining claims within their respective civil procedure regimes. Some key principles worth considering include:

• That similar facts should result in similar outcomes across the EU;

• That collective redress should promote access to justice;

• That collective redress should promote the efficient use of judicial resources; and

• That, to the extent possible, Member States should attempt to coordinate the determination of claims based on the same or related conduct.

Please also see the response to question 12 for the Working Group’s submissions regarding general principles for ensuring that collective redress litigation is managed efficiently.

QUESTION 8 AS CITED ABOVE, A NUMBER OF MEMBER STATES HAVE ADOPTED INITIATIVES IN THE AREA OF COLLECTIVE REDRESS. COULD THE EXPERIENCE GAINED SO FAR BY THE MEMBER STATES CONTRIBUTE TO FORMULATING A EUROPEAN SET OF PRINCIPLES?

24. Yes, the experience of individual Members States in this area can and should be considered when formulating an EU set of principles. Learning from this experience can enable the EU to adopt approaches that have been found to be effective, whilst avoiding those that have not. This process would also enable the EU to consider how a particular measure would operate in different legal systems. In addition, factoring the experience of member states into any EU set of principles will likely result in a wider acceptance of those principles when they are introduced.

- 7 -

QUESTION 9 ARE THERE SPECIFIC FEATURES OF ANY POSSIBLE EU INITIATIVE THAT, IN YOUR OPINION, ARE NECESSARY TO ENSURE EFFECTIVE ACCESS TO JUSTICE WHILE TAKING DUE ACCOUNT OF THE EU LEGAL TRADITION AND THE LEGAL ORDERS OF THE 27 MEMBER STATES?

25. The Working Group has no comments on this issue that are specific to competition law. Please refer to the submission of the IBA Litigation Working Group on this issue.

QUESTION 10 ARE YOU AWARE OF SPECIFIC GOOD PRACTICES IN THE AREA OF COLLECTIVE REDRESS IN ONE OR MORE MEMBER STATES THAT COULD SERVE AS INSPIRATION FROM WHICH THE EU/OTHER MEMBER STATES COULD LEARN? PLEASE EXPLAIN WHY YOU CONSIDER THESE PRACTICES AS PARTICULAR VALUABLE. ARE THERE ON THE OTHER HAND NATIONAL PRACTICES THAT HAVE POSED PROBLEMS AND HOW HAVE/COULD THESE PROBLEMS BE OVERCOME?

26. The Working Group has no comments on this issue that are specific to competition law. Please refer to the submission of the IBA Litigation Working Group on this issue.

QUESTION 11 IN YOUR VIEW, WHAT WOULD BE THE DEFINING FEATURES OF AN EFFICIENT AND EFFECTIVE SYSTEM OF COLLECTIVE REDRESS? ARE THERE SPECIFIC FEATURES THAT NEED TO BE PRESENT IF THE COLLECTIVE REDRESS MECHANIsm would be open for SMEs?

27. Please see the response to Question 12.

QUESTION 12 HOW CAN EFFECTIVE REDRESS BE OBTAINED, WHILE AVOIDING LENGTHY AND COSTLY LITIGATION?

28. As the issues to be addressed under questions 11 and 12 overlap in many aspects, the Working Group has answered them together.

29. Many solutions are conceivable, some of them entailing a deep reform of the current system. For example, a complete harmonisation of collective actions systems in the European Union could be envisaged. Such a harmonised system could include the creation of regulatory bodies, both at the European and national levels, whose role could be focused on alternative dispute resolution. The European Commission and the European Court of Justice could also be granted new powers, including the right to award damages and distribute them to private parties.

30. However, this solution does not seem realistic or feasible, mainly for the two following reasons:

• Firstly, collective actions systems involve the application of the existing civil and procedural rules of Member States; even though common principles can be identified, these rules vary considerably from one Member State to another.

• Secondly, implementing a European-wide collective redress system which grants new competences to European institutions would raise national sovereignty issues and would thus require a modification of the founding Treaties, something which would be complex and cannot be achieved without the consent of all Member States.

- 8 - 31. In light of the above, the Working Group therefore suggests that the European

Commission creates a level playing field by adapting the legal rules of the different Member States. This system would include at least:

• the definition of strict rules of standing, which may differ for consumers and businesses; and

• rules on the admission of evidence.

Strict rules of standing

32. The first beneficiaries of a collective redress system would be final consumers. However, businesses - especially small and medium enterprises (“SME”) - should also be permitted to initiate a collective action. In the context of claims arising from the infringement of competition laws, there are often large businesses who may have suffered relatively small losses and who would benefit from having access to collective redress mechanisms, as it may not be economically viable for them to bring an individual action, despite having the necessary resources to do so.

33. There are those who support having different rules depending on the type of claimants involved, i.e. whether the action is initiated by consumers (I.1.1.) or businesses (I.1.2.). In some jurisdictions (primarily in the US), the law effectively prohibits the bringing of “mixed” actions.

34. Others argue that, in competition law cases, there may actually be some benefits to allowing “mixed” actions in that it would allow the court to adjudicate the claims of both direct and indirect purchasers in the same proceedings and possibly allocate damages between them. This is particularly the case in the light of the “pass-on” issues as between claimants situated at different levels in the distribution chain. In jurisdictions where claims are allowed by both direct and indirect purchasers, “mixed” claims involving direct, indirect and consumer classes have been brought and resolved in a very efficient manner. In addition, determining the entitlement of all participants in the distribution chain in a single proceeding may prevent double recovery.

35. Ultimately, the answer to the issue whether a particular collective redress action can be brought on behalf of different types of claimants should depend on whether there are any inherent conflicts between the various stakeholder groups that comprise the class. In jurisdictions that have existing collective redress mechanisms, there is precedent for the idea of a class being separated into identifiable sub-classes so long as there is still sufficient commonality between the sub-classes to make a collective action reasonable.

(a) Collective redress actions involving consumers

36. Two main options could be envisaged for the introduction of a collective action. Regardless of which approach is chosen, the representative(s) of the consumers should be required to obtain a judicial authorisation to initiate a collective action and to inform consumers about it.

37. A first option would be to allow ad hoc groups of consumers to bring collective redress actions. Alternatively, mandatory recourse to a registered association fulfilling objective criteria set out in law could be imposed.

(i) Actions by ad hoc groups of consumers

- 9 - 38. A straightforward solution would be to allow any group of consumers to initiate a

collective redress action. This solution could increase the number of actions brought before already overloaded courts. This risk needs to be taken into account to ensure that any system introduced has sufficient safeguards to limit the bringing of frivolous proceedings (e.g., a loser-pays cost system).

39. In addition, this option creates the risk of having actions brought by false consumers groups with all the negative consequences it entails - e.g. fraud and potential criminal actions, as well as the creation of consumers groups who are effectively professional litigants. This risk should also be taken into account when considering this option.

(ii) Mandatory recourse to a registered association

40. Mandatory recourse to an association registered with the relevant competent authority in each Member State7, though not completely eradicating the above-mentioned problems, would provide the opportunity to have a preliminary assessment of the merits of a claim. The association should have the discretion to choose the collective actions it wishes to bring to court and identify which consumers have a sufficient interest to participate in such actions.

41. This type of system would require that the representativeness and neutrality of the associations be strictly monitored. In this respect, any refusal by the association to bring an action or to include a consumer in an action should be duly motivated, so as to ensure that no particular interest(s) is (are) over-represented. In this regard, registered associations should be required to have binding governing principles to ensure that they act in the best interests of their respective members when determining whether to bring an action. The question of a possible appeal against decisions by registered associations should also be envisaged by each Member State. In many cases, this may be best addressed by requiring registered associations to address this issue in their constitutional documents.

(b) Collective redress actions involving businesses

42. The need for a registered association to manage the collective action for business customers is less obvious, as businesses are generally better informed of their rights and have more means to enforce them (including in-house counsel or lawyers' advice). Moreover, businesses usually have easier access to the information regarding a contemplated action. However, this may not necessarily be the case, especially with respect to SMEs, and it would be incorrect to assume that all businesses are equally sophisticated or able to initiate legal proceedings.

43. Therefore, the Working Group is of the opinion that recourse to an association, whether registered or ad hoc, should not be mandatory but should still remain an option for businesses.

44. Where businesses decide to bring their claim through an association, the system should be designed so as to ensure that no anticompetitive information exchange occurs within this framework. This risk is especially relevant considering that actions for damages will necessarily involve the communication of information relating to prices, clients and commercial strategy of the claimants.

45. To avoid such risks, the role of the association could be limited to the management of purely procedural aspects and the costs of the proceedings (procedural costs, lawyers’ fees, payment of damages awarded to the defendant in case of abusive

7 This competent authority could for example be the Ministry of Economy of each Member State.

- 10 - litigation, etc.) with each undertaking involved remaining an individual party. Alternatively, where it makes sense for the association to manage all aspects of the claim on behalf of its members, the association and the businesses involved would have to implement appropriate measures prohibiting and preventing any exchange of sensitive information during the collective action (e.g. rules of conduct, firewalls, etc.). In substance, associations acting on behalf of businesses would need to proactively address the potential competition law compliance concerns in a manner similar to that used by trade associations.

Setting up common principles on evidence

46. Certain rules regarding evidence should be introduced in each Member State to ensure a coherent European wide collective action system. This requires addressing a broad range of issues including:

• a clarification of the use of national regulatory authorities’ infringement decisions in “follow on” claims;

• the creation of minimum rules on evidence gathering; and

• in the specific context of competition law, the application of these rules to documents obtained by the European Commission or national competition authorities in the context of leniency applications.

(a) The probative value of prior infringement decisions of regulatory authorities in “follow-on” damage claims

47. Where a regulatory authority is competent to sanction infringements causing harm to legal or natural persons - for example a national competition authority, it should be clarified to what extent its decisions may be used as evidence in subsequent damages claims.

48. Depending on the Member State and the applicable legal framework, civil liability of the defendant may be “objective” or, on the contrary, require, in addition to the harm incurred, the proof of fault as well as of a causal link between the two. For example, in France, product liability claims falling under the Council Directive of 25 July 1985 concerning liability for defective products do not require the proof of fault on the part of the producer. In other cases, such as pharmaceutical product liability claims, the burden of proof of a causal link between the harm and the - presumed - fault is significantly relaxed by the courts. However by contrast, in competition law claims, the claimant needs to establish an infringement, damage and a causal link.

49. In the light of these differences and considering that collective actions against a common defendant may be initiated in several Member States, an infringement decision of a national regulatory authority should have similar probative value in every Member State with a similar competition law regime where it is used in subsequent follow-on damages claims. Failure to provide for this may lead to inconsistent solutions across the European Union and ultimately undermine the creation of a coherent framework for collective actions across Europe.

50. The development of collective actions in Europe requires that decisions of regulatory bodies be given a strong probative value in subsequent damages actions. Any other solution would oblige claimants, rather artificially, to “start from scratch” and re-litigate at their cost the same issues that have already been extensively analysed by the regulatory authority. For the same reasons, common rules on access to evidence held by the regulatory authorities should also be introduced (see comments under (b)

- 11 - and (c) below).

51. A possible solution could be to allow infringement decisions of national authorities as prima facie evidence of fault before the courts of other Member States (to the extent the material facts were the same in both jurisdictions at issue). The weight to be given to such evidence would also have to be determined: it could be used by the claimants to establish fault and the burden of proof would then shift to the defendant to prove that no civil fault has been committed. If no proof of fault is required to establish the defendant's liability (a question which, as stated above, the Working Group suggests should be clarified and harmonised between the different Member States), the presumption of liability arising from a prior definitive infringement decision of a regulatory authority would often be hard for the defendant to rebut.

52. In view of the administrative nature of a regulatory body’s infringement decisions, there may nonetheless be obstacles and strong opposition by the Member States to allowing these decisions as direct evidence of fault by the defendant in civil actions. In this regard, the main obstacle to recognising the binding or even probative value of a decision of one national authority in the courts of another jurisdiction is likely to be the similarity or otherwise of the jurisdictions' respective laws governing the conduct in question. In this regard, the Working Group believes that, the decision of a national authority should have probative value in other Member States with similar laws. However, the degree to which the decision of a national authority is probative in other Member States should ultimately be a question for the relevant courts in those jurisdictions.

(b) Minimum rules on evidence

53. In several countries of the European Union - including Spain, France and Germany - courts have the ability to request documents, subject to certain conditions, from third parties, including national regulatory authorities. However, most Member States do not have a pre-trial discovery process comparable with that found in the United States, the United Kingdom, Canada and Australia and would not welcome the introduction of such a mechanism.

54. The Working Group believes that the introduction of some form of “disclosure” - which may be based on the systems in the countries mentioned above - would significantly contribute to the development of collective actions in Europe. This is a particularly significant issue in the context of private damages claims resulting from the violation of competition law rules, since the conduct in question is often covert. In the absence of some form of disclosure in these cases, claimants may be unable to gather sufficient evidence to bring their claims. This is equally the case where no regulatory authority is competent to sanction the conduct giving rise to the claim, or when such authority has not yet sanctioned the conduct.

55. Even in “follow-on” procedures, obstacles can prevent effective enforcement. For example, it is not always entirely clear when the authority can refuse to communicate the evidence requested. Moreover, even where the courts have the requisite powers, they often do not make full use of these powers to request documents from third parties even when they are entitled to do so.

56. Common rules allowing courts to request evidence from third parties and clarifying when such requests can be opposed should therefore be introduced. These rules should be designed to avoid the pitfalls commonly associated with the US discovery procedure, including tactics used by plaintiffs' lawyers to impose costs on defendants to force settlements in unmeritorious cases in order to avoid the cost of discovery, as

- 12 - well as tactics used by wealthier defendants seeking to drag out the litigation process.

57. If rules of this nature are introduced, the provision of training to judges should be considered to enable them to be better prepared to deal with the gathering of evidence in collective redress actions.

(c) Impact on leniency policy in competition law

58. While rules facilitating access to evidence held by regulatory authorities are seen by many as key to developing private enforcement in the context of competition law cases, they may also conflict with the leniency programs promoted by the European Commission and national competition authorities. Concerns that information provided to a competition authority in the context of a leniency application could be accessed by private litigants may strongly discourage the use of leniency and undermine the whole mechanism developed by the authorities to detect infringements. This is especially an issue where authorities have greater access to or ability to compel the production of information than plaintiffs in a civil case.

59. A debate is currently underway on this issue. In particular, the European Commission is opposed to the communication of leniency documents to courts requesting access to these documents. The position of the European Commission illustrates that it is well aware that the conflicting interests of the parties in private enforcement and leniency programs cannot be fully reconciled and a choice will ultimately have to be made as to which instrument should be preferred as a primary driver of competition policy in the European Union.

While the Working Group does not have a definitive position on this question, a solution might be to include within the leniency program the possibility for the applicant to offer compensation to its customers for the harm they suffered as a result of its anticompetitive behaviour8. This could be resolved through some sort of settlement-type agreement between the leniency applicant and private parties or their representatives. Although not fully addressing the issues arising in the context of leniency applications, this solution presents many advantages: not only does it eliminate the question of access to evidence by private parties but it also supports collective redress without discouraging leniency.

Safeguards against abusive litigation

60. Many stakeholders have, in the past, expressed their concern about the risk of abusive litigation if collective actions were to be introduced in the European Union. Broadly speaking, most stakeholders are of the opinion that a collective redress system, if not set out in a strict framework, might turn into a self-defeating system where the benefits initially contemplated are outweighed by its negative aspects.

61. The Working Group shares these concerns and believes that two key negative effects may result from a collective redress system that does not include the appropriate checks and balances:

• Firstly, collective redress mechanisms may create an incentive to bring a high number of unfounded claims to the courts and, as such, encourage the development of a culture of excessive litigation (which wastes the resources of the courts as well as litigants).

8 In this respect, the European Commission(‘s Green Paper on damage actions for breach of the EC antitrust rules

proposes to give successful leniency applicants a rebate on damages and removing joint and several liability (Commission Staff Working paper, § 235 and 236 (Options 29 and 30)).

- 13 - • Secondly, the benefits of a collective redress mechanism may be neutralised

by adverse effects arising from such actions, especially in the case where the costs borne by the defendants companies become so heavy that they are at least partially passed on to the final consumers (for example by increasing the price of their products or limiting their innovation investments). This is especially relevant in the competition law context where it is possible for most or even all of the participants in a particular industry to be subject to significant private damages claims in addition to significant fines imposed by public authorities.

62. As explained above, the Working Group considers that mechanisms such as the adoption of strict rules regarding standing, the application of existing procedural principles common to most Member States and the pre-eminent role conferred to the judiciary in collective actions procedures all constitute strong safeguards against abusive litigation.

63. In addition, the Working Group also considers that an effective and efficient collective redress system should comply with the following principles:

• “Opt-in” systems should be preferred to “opt-out” systems.

• The lawyer’s role should be limited to its traditional function of defence and representation before the courts.

• Successful defendants ought to be able to recover some or all of their costs from unsuccessful plaintiffs/associations (and vice versa).

• Punitive damages or other damages in excess of actual harm or losses incurred by customers (e.g. trebling) should not be allowed, in particular where the conduct at issue has or may be subject to sanctions under the applicable public enforcement regime(s).

QUESTION 13 HOW, WHEN AND BY WHOM SHOULD VICTIMS OF EU LAW INFRINGEMENTS BE INFORMED ABOUT THE POSSIBILITIES TO BRING A COLLECTIVE (INJUNCTIVE AND/OR COMPENSATORY) CLAIM OR TO JOIN AN EXISTING LAWSUIT? WHAT WOULD BE THE MOST EFFICIENT MEANS TO MAKE SURE THAT A MAXIMUM OF VICTIMS ARE INFORMED, IN PARTICULAR WHEN VICTIMS ARE DOMICILED IN SEVERAL MEMBER STATES?

64. A key issue is whether there should be any public involvement in initiating (as opposed to supervising) communications of this nature. The Working Group does not believe it should be the role of public enforcers to publicise the possible existence of a claim. As discussed above, there should be a clear distinction between public and private enforcement initiatives. That being said, the EU or national regulators may wish to provide basic information regarding the existence of a collective redress regime and how to use it as part of its public education/information mandate.

65. In terms of informing claimants of the possibility of bringing a collective action, the experience in jurisdictions where collective redress regimes exist is that this is not an overly problematic issue. To begin with, coverage of investigations and public enforcement decisions in the business and mainstream media is already quite common. Moreover in many jurisdictions, entrepreneurial plaintiffs' counsel have become extremely adept at developing effective public communication strategies at all stages of collective claims and there is no reason to believe that this would not be the case in the EU (indeed it has already been occurring to some degree). Similarly,

- 14 - should representative associations be empowered to bring claims, they would also quickly develop this expertise.

66. With respect to informing claimants once an action has been commenced, the relevant court should have an oversight role to ensure that information is effectively communicated to claimants. This includes ensuring that: the content is readily understandable by typical class or group members and the information is communicated in a manner that is reasonably likely to come to their attention (for example whether to publish in newspapers, trade journals or both, the countries in which the information must be communicated, the use of electronic communication options, as well as how long or often the information needs to be communicated). The experience in jurisdictions with collective redress systems is that, whilst there may be general principles that can be developed, the specifics will vary considerably depending on the particular case at hand.

67. A very effective way to reach all potentially affected direct purchasers is to require the defendant to provide a customer list at an appropriate stage in the proceedings. Based on the experience of its members, the Working Group believes that, at European level, other particularly effective ways to ensure that the highest number of potential victims are informed about their right to join a collective claim would be to publish the decision allowing the claim to proceed (or the intention to file a collective claim against an infringer) in various public-information sources, including the following:

• the websites of national judicial and administrative authorities;

• the websites of consumer associations and other associations entitled to file a collective claim, and in the most widely used social networks (e.g., Facebook and Twitter);

• at European level, the European Commission could create a website to promote the communication of collective redress claims that have been brought (or are about to be brought) within Member States9; and

• The three most important national newspapers of each Member State, including their online versions.

68. When a collective claim has been filed before the court of a Member State, this fact should be communicated to a network of national courts and other authorities dealing with collective claims (see question 14), suspending the proceedings while the claim is published in the above information sources to allow all affected parties to join the claim or to file a new claim before the authorities of another Member State.

69. Finally, the possibility of imposing the obligation to publish the decision declaring the infringement on the website of the offender, accompanied by a standard reference to the right of the victims to file a claim, as an obligation ancillary to the execution of any infringement decision could also be considered.

On this issue, the Working Group believes that the above are a good set of guidelines for ensuring the effective communication of possible claims to claimants. However, there should be sufficient flexibility in any guidelines or policy to allow for a

9 The Commission could gather this information from:

• associations or groups of victims intending to file collective claims affecting victims from different Member States; and

• judicial authorities that have received collective claims for damages.

- 15 - communication protocol to be tailored in order to target specific audience(s).

QUESTION 14 HOW THE EFFICIENT REPRESENTATION OF VICTIMS COULD BE BEST ACHIEVED, IN PARTICULAR IN CROSS-BORDER SITUATIONS? HOW COULD COOPERATION BETWEEN DIFFERENT REPRESENTATIVE ENTITIES BE FACILITATED, IN PARTICULAR IN CROSS-BORDER CASES?

70. While the experience of the US, Canada and Australia will not inform EU policy from a cross-border perspective, there are some features of their respective class action regimes which may inform the debate about efficient representation of victims.

71. In Australia, a distinction is drawn between the lead applicant (who will typically be represented by a law firm) and group members (who do not need to be represented). The fact that unrepresented individuals may be bound by a class action judgment means that the Federal Court fulfils a supervisory role for the benefit of these (unrepresented) individuals. Under Part IVA, the Federal Court has broad powers by which it can ensure that class actions are run fairly and expeditiously. The supervisory powers include:

• The Court sets protocols for communication with group members. In addition to opt-out notices, discussed above, the Court outlines the manner and circumstances in which lawyers should communicate with group members.

• The Court must approve settlements. When applying to the Court for approval of a settlement, the parties will usually need to persuade the Court that the proposed settlement is fair and reasonable and has been undertaken in the interests of group members.

72. While the systems in the US and Canada are not identical to Australia, there are similarities in the sense that courts have broad powers to oversee the process from the perspective of determining which lawyers will take the lead role, developing appropriate class communication protocols and having the ultimate authority to approve or reject settlements (including the provisions relating to the payment of counsel fees).

73. In the EU, it is possible that multiple actions in different jurisdictions will be commenced in relation to the same subject matter. An analogous situation arises in the jurisdictions mentioned above where different firms commence different class actions in respect of the same matter, sometimes for and on behalf of the same (or overlapping) classes of claimants. This regularly occurs both within a state or province, as well as across multiple states/provinces.

74. The potential difficulties that occur where multiple class actions are generated by the same events is illustrated in the recent and ongoing litigation against the Australian property group Centro Group. Investors filed three separate class actions seeking to recover losses following a dramatic collapse of the listed group's share price.10 Each class action defined the class it represented differently, such that there was no overlap in membership and there were no 'double actions' on the part of any Centro shareholders.11 As each action "share[d] the same nucleus of operative facts", however, the Federal Court decided that steps needed to be taken to ensure

10 Ashley Midalia, 'Investors keen for class action', Australian Financial Review (Melbourne) 16 January 2008. 11 Michael Legg, 'Entrepreneurs and Figureheads - Addressing Multiple Class Actions and Conflicts of Interest' (2009)

32(3) UNSW Law Journal 909, 911.

- 16 - efficiency and consistency in dealing with the class actions.12

75. The Court decided that the best approach was to establish a litigation committee to oversee the future course of the litigation, to be run so as best to serve the interests of class members rather than their representatives.13 This novel approach suggests that court supervisory powers may be effective in dealing with complicated procedural issues, facilitating cooperation between competing class actions. The EC may consider encouraging courts within the European Union to make similar orders, subject to procedural rules across jurisdictions.

76. One example of how to deal with multiple claims is the US multi-district litigation MDL process. Under the MDL process, where multiple actions in respect of the same conduct are brought under federal antitrust laws, they are aggregated before a single judge of the Federal Court for all pre-trial and discovery-related matters. This judge is empowered to take appropriate steps to ensure that the proceedings proceed as efficiently as possible and effectively “case manages” the proceedings. While the MDL process is far from perfect and raises complex issues regarding the application of the laws of different jurisdictions, it has been in place for over 40 years and could provide useful guidance on some of the issues being considered by the EU in relation to collective redress in the competition law area.

77. In practice, cooperation between plaintiffs' counsel may also contribute to efficient coordination of cases. In Canada and the US claims for alleged violations of competition laws are often brought in multiple provinces or states simultaneously. In many cases, there is a high degree of cooperation between plaintiffs' counsel, both within a province/state (where it is common to see counsel entering agreements to act jointly on behalf of the class) and between provinces/states (where it is common to see counsel/counsel groups cooperating to share information and coordinate to the extent practicable). This has also occurred on a cross-border basis in many situations where similar claims have been brought in both Canada and the US. In addition to the cooperation between counsel, there may also be cooperation between courts – while there is no formal mechanism for inter-court cooperation, judges have often filled this gap by adopting a pragmatic approach.

78. One possibility is the creation of a European network of courts and other authorities (for example by implementing processes of communication and coordination) for dealing with collective claims (similar to the European Competition Network, for example). This could allow an efficient and rapid interchange of relevant information and coordination between them (as with the RAPEX system14 for unsafe products). Such a system should be open, at least partially, to users, consumers and professionals. If accompanied by the establishment of common legal standards for collective actions at European level, this coordination would also allow for coherent decisions to be made regarding the same infringement by courts and adjudicating bodies of different Member States.15

79. The possibility of creating a European Court for collective claims against infringements with a European scope could also be considered. In spite of its practical

12 Kirby v Centro Properties Limited (2008) 253 ALR 65, [9] (Finkelstein J). 13 Kirby v Centro Properties Limited (2008) 253 ALR 65, [33] (Finkelstein J). 14 The EU rapid alert system for dangerous consumer products:

http://ec.europa.eu/consumers/dyna/rapex/rapex_archives_en.cfm 15 As the courts of different Member States will probably know about collective redress actions in respect of the same

infringement, the possibility of establishing suspension and referral mechanisms in favour of the best-placed authority could also be considered (for example, in those cases where most of the affected consumers are in one Member State, or where the infringement has taken place in the territory of a certain Member State and its authorities are best placed to gather evidence on the alleged infringement).

- 17 - difficulties, this would be the most straightforward way to eliminate forum-shopping practices and conflicts between different jurisdictions.

80. Means should also be explored to coordinate the actions of victims, consumer associations and groups of victims (when groups are created to file collective claims) in different Member States before judicial and administrative bodies.16

81. Ultimately, the experience in other jurisdictions suggests that, where there is an interest in working together to advance common goals, interested parties will do so. The examples above suggest that the preferred approach likely involves the implementation of some formal mechanisms for ensuring cooperation at both the counsel and court levels, as well as permitting a degree of flexibility that allows for the development of pragmatic approaches based on the facts of a particular case/set of cases.

QUESTION 15 APART FROM A JUDICIAL MECHANISM, WHICH OTHER INCENTIVES WOULD BE NECESSARY TO PROMOTE RECOURSE TO ADR IN SITUATIONS OF MULTIPLE CLAIMS?

82. To promote ADR in cases of collective claims, as in single claims, it is necessary to ensure that stakeholders know that ADR exists and is a viable alternative to litigation. The more knowledge there is about ADR, the more often it will be used. Promotional actions e.g., presentations on ADR and model internal policies for dispute resolution, could be addressed to undertakings and representative associations. Although demand for mediation services has increased and will increase even more with the Member States’ implementation of Directive 2008/52/CE, most European undertakings do not know about ADR and do not have relevant internal policies, which means they see themselves as obliged to resolve their conflicts through judicial mechanisms.

83. In the context of multiple claims, there is likely some need for any settlement to be subject to some official oversight to ensure that it addresses the claims of the class members in an objectively reasonable and fair manner. This is especially the case where the settlement relates to the claims of large groups of consumers and SMEs who may not even be aware of their claims, let alone the fact of a settlement. Accordingly, the settlement of multiple claims needs to be governed by processes similar to those used in the context of an outcome achieved through a judicial process, regarding communication to potential claimants, processes for managing claims and other issues.

84. In terms of incentives, many jurisdictions have rules that impose costs sanctions on parties who reject reasonable pre-trial settlements (including possible settlements arrived at through the use of ADR). In short, where the party who rejects a settlement offer achieves a less favourable outcome at trial, they may be required to pay a portion of the other party’s costs or reduce the amount of their own cost recovery. To the extent the EU wishes to encourage the use of ADR, some thought must be given to creating the necessary incentives/disincentives for both lawyers and their clients.

85. Lawyers should know about ADR and have incentives to promote it to clients and employers (in the case of in-house lawyers). A possible modification of Associations' rules and a suggested new structure for mediation fees could be relevant to consider.

16 For instance, in addition to the information sources referred to above, consideration should be given to harmonizing

rules on locus standi and to facilitate actions by associations and groups representing victims from different Member States before a unique body, as well as to facilitate the intervention of third parties in another Member State after the admission of a claim has already been decided upon.

- 18 -

QUESTION 16 SHOULD AN ATTEMPT TO RESOLVE A DISPUTE VIA COLLECTIVE CONSENSUAL DISPUTE RESOLUTION BE A MANDATORY STEP IN CONNECTION WITH A COLLECTIVE COURT CASE FOR COMPENSATION?

86. The Working Group believes that this is a question of general policy which does not raise any competition-law-specific issues.

QUESTION 17 HOW CAN THE FAIRNESS OF THE OUTCOME OF A COLLECTIVE CONSENSUAL DISPUTE RESOLUTION BEST BE GUARANTEED? SHOULD THE COURTS EXERCISE SUCH FAIRNESS CONTROL?

87. In the case of collective redress claims, the likely practical approach where there are differently situated groups of claimants is to ensure that any settlement adequately provides for all groups. This is often an issue in settlements negotiated in the context of competition law claims that cover claimants at different levels of the distribution chain. In these situations, care must be taken to ensure that the settlement reflects the manner in which overcharges were passed on to industry participants and consumers. While it is possible to argue that it would be preferable to address the claims of claimants individually, this would be impractical and likely negate the intended benefits of the ADR process. Furthermore, the use of aggregated solutions is entirely appropriate in the context of collective claims.

88. For the reasons discussed above, it seems that the best way to ensure the fairness of an ADR outcome in the context of collective claims is for settlements to be subject to the oversight of the relevant judicial body or bodies. The criteria for this could include there being a sufficient level of information to substantiate the reasonableness of the settlement (in the competition law context, this might include evidence of an independent expert addressing the overcharge issue mentioned above), that the settlement adequately addresses the claims of differently situated groups of claimants, that any agreement regarding counsel fees be objectively reasonable, that there be an effective claims administration system and that any settlement funds not disbursed to claimants be dealt with in an acceptable matter. In this regard, rather than establishing a binding set of rules, it would be preferable to set out guiding principles and put the onus on the parties to demonstrate that the settlement in question meets these principles.

89. In terms of addressing the issue of the use of ADR in cross-border claims, it would likely be helpful to introduce some sort of EU guidelines regarding how to assess the adequacy of collective settlements. However, in the absence of formal mechanisms, stakeholders seeking to settle cross-border claims will likely have to develop a pragmatic approach – for example making settlements conditional on receiving all required approvals, etc.

QUESTION 18 SHOULD IT BE POSSIBLE TO MAKE THE OUTCOME OF A COLLECTIVE CONSENSUAL DISPUTE RESOLUTION BINDING ON THE PARTICIPATING PARTIES ALSO IN CASES WHICH ARE CURRENTLY NOT COVERED BY DIRECTIVE 2008/52/EC ON CERTAIN ASPECTS OF MEDIATION IN CIVIL AND COMMERCIAL MATTERS?

90. Article 6 of Directive 2008/52/EC covers the issue of enforceability of agreements resulting from mediation, and provides that Member States shall create mechanisms

- 19 - to ensure that these agreements can be executed before a court or similar body. However, the Directive is applicable to cross-border disputes only. Therefore nothing is provided for the enforcement of domestic settlement agreements obtained through mediation. Agreements obtained through negotiation are also not covered, regardless of whether they are cross-border or domestic.

91. The purpose of a settlement agreement is to resolve the dispute. Therefore, in the interests of effective dispute resolution, it would seem normal to promote the enforcement of a collectively and mutually accepted outcome in all situations, whether covered by the Directive or not.

92. The outcome of a collective consensual dispute resolution is generally a contract, and one fundamental rule of contract law is that the parties are free to breach the contract if they wish to. Making this contract have the same binding effect as a court ruling will require the intervention of a court issuing an order to that effect. In the interests of effective dispute resolution and access to justice, making collective settlement agreements binding through a court order would increase social and commercial equality, since big corporations who are the defendants in a collective claim should not be able to simply refuse to honour the settlement agreement and choose to bear the costs of that decision. Having a court grant the exequatur of a settlement agreement in the context of collective consensual dispute resolution would be a significant step towards the promotion of justice. Moreover, a collective settlement agreement is supposed to have been accepted and agreed to by all the parties. Therefore, it should not be a problem for a court to issue an order making that outcome binding if it facilitates the execution of the agreement both domestically and on a European level.

93. For courts to grant the exequatur of a consensual settlement agreement, they would obviously have to base their decision on certain criteria. The issue of the fairness of the outcome has already been discussed above, and the courts will have an important role to play whilst ensuring that no violation of public policy principles occurs, since courts are the guardians of these fundamental principles. The question of which principles of public policy are to be used when analysing whether or not to grant exequatur also remains open.

94. In addition to the question of fairness of the outcome and in order to guarantee its authenticity, certain procedural requirements should be imposed when the parties seek to have their agreement recognised by a court, such as the agreement being produced in writing with the valid signatures of the parties and bearing for example a date and the number of pages.

95. If the courts recognised that such agreements are valid and can be executed as court orders, it would allow for a more efficient and effective justice system. As a result, making the outcome of a collective consensual dispute resolution binding should be made possible, provided at least one of the parties, or both, request it. It is preferable if the parties decide to execute their agreement without an order of the court, since it saves time and cost; however, if one party feels that the other may not perform its obligations, it should be possible for any party to compel the other to perform the obligations it accepted and agreed to as part of their agreement.

QUESTION 19 ARE THERE ANY OTHER ISSUES WITH REGARD TO COLLECTIVE CONSENSUAL DISPUTE RESOLUTION THAT NEED TO BE ENSURED FOR EFFECTIVE ACCESS TO JUSTICE?

- 20 - 96. The Working Group believes that this is a question of general policy which does not

raise any competition law specific issues.

QUESTION 20 HOW COULD THE LEGITIMATE INTERESTS OF ALL PARTIES ADEQUATELY BE SAFEGUARDED IN (INJUNCTIVE AND/OR COMPENSATORY) COLLECTIVE REDRESS ACTIONS? WHICH SAFEGUARDS EXISTING IN MEMBER STATES OR IN THIRD COUNTRIES DO YOU CONSIDER AS PARTICULARLY SUCCESSFUL IN LIMITING ABUSIVE LITIGATION

97. The Working Group is of the opinion that both the judge and the lawyer should play a fundamental role in ensuring that the legitimate interests of all parties are adequately safeguarded in collective redress actions.

98. With respect to the issue of contingency fees, the Working Group is divided. Those opposing contingency fees view them as creating a conflict between the interests of the lawyer and the client. Those in favour of allowing lawyers to act on a contingency fee basis believe that this both increases access to justice in collective redress cases, whilst at the same time imposing a commercial discipline on plaintiffs’ counsel which should minimise the number of class actions. There is consensus that, whatever fee mechanism is allowed, it should be reasonable in the light of the complexity of the case and risk assumed by the plaintiffs' counsel. In the competition law context, this means that there may be some justification for higher counsel fees where they are bringing a stand-alone, as opposed to a follow-on action. Further, there is a general consensus that the court should have some role in scrutinizing the lawyer’s portion of any damages obtained (this could prevent situations where there is a settlement that pays the plaintiff’s counsel but provides minimal benefits to the plaintiff class or group). There is similarly a division with respect to the issue of allowing private funding for collective redress proceedings.

99. With respect to whether an “opt-in” or “opt-out” mechanism is preferred, the Working Group is again divided. Supporters of the “opt-in” system refer to the Commission’s support for this approach in its 2008 White Paper on Damages actions for breach of the EC competition laws and the fact that the majority of Member States have “opt-in” mechanisms for collective redress. The key concerns expressed regarding the “opt out” method include (i) cost of administering the settlement funds, (ii) potential constitutional issues, and (iii) the risk of over-compensation if not all class members make claims, among others. On the other hand, supporters of the “opt-out” system cite its predictability in that it effectively disposes of the vast majority of claims, including potentially those of all indirect purchasers.

100. In the context of competition law class actions, the “opt-out” model may be a more effective way of dealing with the claims of indirect purchasers, in particular individual consumers who may have very small claims. In some jurisdictions, where it would be difficult to ascertain the value of compensation owed to an individual consumer, a portion of the settlement funds (either a set amount or any amounts not claimed) is paid to a designated agency (often a consumer protection agency), which eliminates some of the concerns of this model. It is also unclear as to whether the administration of an “opt-in” settlement is any more efficient/less expensive than administering an “opt-out” settlement.

101. Having had the benefit of reading the submission of the European Competition Lawyers’ Forum, the Working Group shares the view that, in the context of competition law class actions, some consideration should be given to adopting some sort of “hybrid” approach. One possibility would be to use an “opt-in” approach where

- 21 - it is possible to identify claimants (typically this can be done for direct purchasers and institutional indirect purchasers) and an “opt-out” approach for sub-classes that can not be readily identified (typically smaller indirect purchasers and consumers). In this type of system, the amount of compensation earmarked for the “opt-out” class would be determined and set aside and any amounts not claimed would be allocated to an agreed to charity or agency. Obviously, there are other possible permutations that could be developed to use the mechanism best suited for dealing with the claims of the relevant stakeholders.

102. As discussed above, a key measure for safeguarding the rights of all parties is to implement some sort of screening or certification mechanism that is applied before an action can proceed as a class action. In addition to preventing clearly unmeritorious litigation from proceeding, they also serve to focus the issues, ensure that the interests of differently situated groups of claimants are addressed, and avoid the bringing of cases where individual issues may outweigh common issues. In addition, having some sort of screening mechanism minimizes the chance that parties and courts will expend considerable resources on cases that ought not to proceed for a variety of reasons. Similarly, there should be a mechanism for de-certifying a class action where it becomes apparent that it would be inappropriate for it to proceed as such – for example where individual issues outnumber the common issues.

QUESTION 21 SHOULD THE "LOSER PAYS" PRINCIPLE APPLY TO (INJUNCTIVE AND/OR COMPENSATORY) COLLECTIVE ACTIONS IN THE EU? ARE THERE CIRCUMSTANCES WHICH IN YOUR VIEW WOULD JUSTIFY EXCEPTIONS TO THIS PRINCIPLE? IF SO, SHOULD THOSE EXCEPTIONS RIGOROUSLY BE CIRCUMSCRIBED BY LAW OR SHOULD THEY BE LEFT TO CASE-BY-CASE ASSESSMENT BY THE COURTS, POSSIBLY WITHIN THE FRAMEWORK OF A GENERAL LEGAL PROVISION?

103. The “loser pays” principle appears instrumental to reducing the risk of abusive claims in a collective redress system. Indeed, this principle implies that, if the collective action is dismissed by the judge, the claimants and their representative entity (or counsel or other funding entity - see the response to question 27 below) will have to bear the costs of their action.

104. As a consequence, it can be assumed that this factor will be taken into account when reflecting on the pros and cons of initiating of a collective action and will thus act as a partial safeguard against unfounded claims. In this respect, it would be the role of the judge, the lawyer and the representative entity to discourage claims which are at a greater risk of being dismissed. However, for the loser pays principle to be effective, the amount of any costs awards must be sufficiently significant to act as a deterrent to the bringing of frivolous cases. That being said, courts should retain some discretion over costs awards to ensure that they do not prevent the bringing of legitimate difficult or novel cases.

QUESTION 22 WHO SHOULD BE ALLOWED TO BRING A COLLECTIVE REDRESS ACTION? SHOULD THE RIGHT TO BRING A COLLECTIVE REDRESS ACTION BE RESERVED FOR CERTAIN ENTITIES? IF SO, WHAT ARE THE CRITERIA TO BE FULFILLED BY SUCH ENTITIES? PLEASE MENTION IF YOUR REPLY VARIES DEPENDING ON THE KIND OF COLLECTIVE REDRESS MECHANISM AND ON THE KIND OF VICTIMS (E.G. CONSUMERS OR SMES).

- 22 - 105. As stated above, requiring that multiple claimants form a group which has to be

validated by a court is a way of ensuring the legitimacy of a collective redress action. Additional criteria could be based on factual matters (for example, that the members of a group or identified sub-group must have suffered the same type of damage, or that the factual descriptions of each individual case must have some degree of similarity). This would ensure that the interests of the group coincide with the general interests of the individual claimants constituting the group.

Please refer to the response to Question 12 for further discussion.

QUESTION 23 WHAT ROLE SHOULD BE GIVEN TO THE JUDGE IN COLLECTIVE REDRESS PROCEEDINGS? WHERE REPRESENTATIVE ENTITIES ARE ENTITLED TO BRING A CLAIM, SHOULD THESE ENTITIES BE RECOGNISED AS REPRESENTATIVE ENTITIES BY A COMPETENT GOVERNMENT BODY OR SHOULD THIS ISSUE BE LEFT TO A CASE-BY-CASE ASSESSMENT BY THE COURTS?

106. Please refer to the response to Question 12 for further discussion.

QUESTION 24 WHICH OTHER SAFEGUARDS SHOULD BE INCORPORATED IN ANY POSSIBLE EUROPEAN INITIATIVE ON COLLECTIVE REDRESS?

107. There is a strong view within the Working Group that prohibiting the awarding of punitive (or multipliers of actual) damages in civil cases is another important safeguard against abusive litigation.

108. Punitive damages (or exemplary damages) are damages that are awarded in excess of the claimant’s actual loss when compensatory damages are insufficient to deter and redress wrongdoing. They are traditionally admitted in the United States where private enforcement actions are also considered as a strong deterrence instrument, especially when there is a lack of public enforcement.

109. The situation in the European Union is very different: governments are traditionally much more interventionist and public enforcement actions encompass a sort of punitive dimension. Punitive damages are only admitted in limited jurisdictions such as England and Wales, Ireland and Cyprus.17 The European Court of Justice is not opposed to the award of punitive damages but considers that it is for each Member State to decide if they wish to authorize them:

“As to the award of damages and the possibility of an award of punitive damages, in the absence of Community rules governing the matter, it is for the domestic legal system of each member state to set the criteria for determining the extent of the damages, provided that the principles of equivalence and effectiveness are observed.

In that respect, in accordance with the principle of equivalence, it must be possible to award particular damages, such as exemplary or punitive damages, pursuant to actions founded on the Community competition rules, if such damages may be awarded pursuant to similar actions founded on domestic law.”18

110. In the context of infringements of competition law, the deterrence function, which is inherent to the concept of punitive damages, is already fulfilled by public enforcement actions. In this respect, Mr Justice Lewinson held, in a judgment of the High Court of

17 High Court of England and Wales, 19 October 2007, Devenish Nutrition Ltd. & Others. v. Sanofi-Aventis SA (France)

& Others, [2007] EWHC 2394 (Ch.), §33. 18 ECJ, Cases C-295/04 to C-298/04, 13 July 2006, Manfredi v. Lloyd Adriatico Assicurazioni SpA, §92 and 93

- 23 - England and Wales, that the imposition of fines in anticompetitive cases and exemplary damages serve the same purpose: to punish and deter anticompetitive behaviour.19 Allowing civil courts to award punitive damages in competition law damages cases effectively subjects defendants to a form of double jeopardy.

111. Second, punitive damages conflict with the basic rule underlying civil actions in most EU Member States, such as France or Italy, whereby damages in civil actions are awarded as compensation for injury and not as punishment for a wrongdoing. According to this principle, the object of a civil claim is reparation; and the applicable principle is “restitutio in integrum”: a party can recover all the damage it suffered from the wrongdoing of the defendant, but only this damage, which excludes any compensation which would have as its objective the punishment of the defendant.

QUESTION 25 HOW COULD FUNDING FOR COLLECTIVE REDRESS ACTIONS (INJUNCTIVE AND/OR COMPENSATORY) BE ARRANGED IN AN APPROPRIATE MANNER, IN PARTICULAR IN VIEW OF THE NEED TO AVOID ABUSIVE LITIGATION?

112. In some jurisdictions, there is a public fund that can be accessed by claimants seeking to bring collective redress actions. Where this is available, there is generally an established set of criteria that must be met to be eligible for funding. To obtain funding, an application must be filed and is evaluated by an independent panel. In exchange for receiving funding, the claimants must commit to repaying the amounts provided by the fund, possibly with a premium. Generally, the goal of these types of funds is, at a minimum, to be self replenishing, if not grow over time.

QUESTION 26 ARE NON-PUBLIC SOLUTIONS OF FINANCING (SUCH AS THIRD PARTY FUNDING OR LEGAL COSTS INSURANCE) CONCEIVABLE WHICH WOULD ENSURE THE RIGHT BALANCE BETWEEN GUARANTEEING ACCESS TO JUSTICE AND AVOIDING ANY ABUSE OF PROCEDURE:

113. Where it is allowed, private third party litigation funding has been the subject of robust debate, and the question of whether it strikes the right policy balance between increasing access to justice and avoiding abuse of procedure is controversial. Broadly, those supportive of the practice have argued that litigation funding increases access to justice by providing funding for claims that would otherwise not be litigated. On this view, funders fill an important gap in the market for legal services caused by the prohibition on contingency fee arrangements entered into by lawyers.20

114. Those who are sceptical of the practice have criticised litigation funding on several grounds:

• It may result in an unfair deal for claimants. There is often an unequal bargaining position between claimants and funders which may result in the funder recovering an unfairly high proportion of claims.21

• Funders may traffic in litigation. The commercial interest of funders in litigation may lead them to 'drum up' actions where claimants had earlier preferred not to sue.22

19 High Court of England and Wales, 19 October 2007, Devenish Nutrition Ltd. & Others. v. Sanofi-Aventis SA (France)

& Others, [2007] EWHC 2394 (Ch.), §48. 20 Ibid, 810. 21 Ibid, 810. 22 Peta Spender, 'After Fostif: Lingering uncertainties and controversies about litigation funding' (2008) 18 Journal of

- 24 - • Funders' involvement in an action may constitute an abuse of process.

Funders are often highly involved in the running of cases, and may breach court rules in doing so.23

115. The leading case on the legal status of litigation funding in Australia is Fostif. In that case, the High Court was asked to rule whether a funded class action amounted to an abuse of court process in the New South Wales Supreme Court. The High Court held, by majority of five to two, that many people seek to profit from assisting the processes of litigation and that such conduct is not, of itself, contrary to court process. As the criminal and tortious prohibitions against maintenance and champerty had been removed, there was no independent ground of public policy which litigation funding impermissibly offended. 24

116. However, litigation as a profitable activity undertaken by non-lawyers remains a controversial notion in Australia. The minority in Fostif made the point forcefully that causes of action in litigation should not be treated merely as items to be dealt with commercially; this approach confuses the proper role of the courts, which is to quell disputes and not to act as venues in which to speculate on profits.25 Recently, the Chief Justice of the Federal Court of Australia has publicly sounded a cautionary note, reproving litigation funders for clogging up the court system with actions that would not otherwise have been be brought and making the claim that the intervention of third parties in litigation creates profound conflicts of interest for lawyers.26 For example, the Chief Justice pointed out that lawyers seem to have little incentive to propose settlement to clients where the action is funded by a third party litigation funder.27

117. Moreover, while litigation funders argue that their commercial focus ensures that they avoid abusive litigation, because they will not take cases with poor prospects of success,28 they have had a strong impact on the type of class actions run in Australia. By applying rigorously commercial criteria to funding decisions,29 funders will only take on cases where there is a reasonable prospect of making profit; litigation funding is a business which decides whether to fund cases based on risk and return.30 Litigation funders have promoted litigation in profitable areas, such as securities and cartel class actions,31 with less funding made available for mass tort claims which are perceived to be riskier.32 This shift is borne out in the empirical data. Between 2000 and 2009, more shareholder class actions were run in the Federal Court than consumer protection and product liability class actions combined.33 Rather than vulnerable individuals, the clients of litigation funders are often sophisticated institutional investors, well able to protect their own legal rights without funding assistance, but attractive because they add large amounts to the pool of damages.

It is worth noting the types of cases typically financed by professional funders are

Judicial Administration 101, 107-108. 23 Ibid, 111. 24 Campbells Cash and Carry v Fostif Pty Ltd (2006) 229 CLR 386, [88-89] (Gummow, Hayne & Crennan JJ). 25 Campbells Cash and Carry v Fostif Pty Ltd (2006) 229 CLR 386, [266] (Callinan & Heydon JJ). 26 P A Keane, 'Access to justice and other Shibboleths' (Paper presented at the Supreme and Federal Court Judges'

Conference, Hobart, January 2009) 1-3. 27 Ibid, 7. 28 John Walker & Wayne Attrill, 'Policy issues in litigation funding' (Paper presented at the Supreme and Federal Court

Judges' Conference, Hobart, January 2009) 16. 29 See John Walker, Susanna Khouri & Wayne Attrill, above n 45. 30 Michael Legg et al, above n 65, 5. 31 James Mayanja, above n 5, 50-51. 32 Peta Spender, above n 76, 103. 33 Vince Morabito, 'An Empirical Study of Australia's Class Action Regimes Second Report: Litigation Funders,

Competing Class Actions, Opt Out Rates, Victorian Class Actions and Class Representatives' (2010) 27 <http://www.buseco.monash.edu.au/blt/staff/v-morabito-second-report-2010.pdf>.

- 25 - those that have a commercially reasonable risk/return profile. In the context of competition law collective redress actions, this means that professional funders are less likely to fund stand-alone or novel claims. To the extent that the Commission wants to incentivise the bringing of these types of competition law claims, professional funders may not be particularly active. In sum, private litigation funding may not result in the intended increased access to justice and should be approached cautiously, and only in the context of strict regulation.

QUESTION 27 SHOULD REPRESENTATIVE ENTITIES BRINGING COLLECTIVE REDRESS ACTIONS BE ABLE TO RECOVER THE COSTS OF PROCEEDINGS, INCLUDING THEIR ADMINISTRATIVE COSTS, FROM THE LOSING PARTY? ALTERNATIVELY, ARE THERE OTHER MEANS TO COVER THE COSTS OF REPRESENTATIVE ENTITIES?

118. The working Group believes that representative entities should be able to recover their costs from the losing party. For example, under Australian civil procedure generally, the unsuccessful party is usually ordered to pay the costs of the successful party, including the lawyer's professional fees and expenses. The 'loser pays' principle is crucially important in deterring unmeritorious litigation. Its absence in the United States is commonly suggested as being one of the reasons behind the higher incidence of unmeritorious litigation in that jurisdiction compared to others. In a class action context (Australia does not use the concept of a representative entity), it is the lead applicant who is liable for, and can recover, costs.

119. One costs issue that has been discussed recently in a class action context is whether litigation funders should have to pay adverse costs orders in the actions they fund. At present, a defendant cannot seek a costs order against a litigation funder where the funder has not indemnified the plaintiff against the defendant's costs.34 This has led to an imbalanced situation whereby a funder may reap significant benefits from litigation, while avoiding the risk of an adverse costs order.35 This lack of risk may thus constitute a significant 'moral hazard' for the funding industry, distorting the true risks of litigation and leading litigation funders to fund less meritorious proceedings. It is a common tactic in class actions for the lead applicant to be a 'straw man', of limited financial resources, in an attempt to lessen the risk of having to bear a significant adverse costs order. The situation in Australia can be contrasted with that in Canada, where courts have made significant costs orders against class counsel, which serves as a useful deterrent and adds an important element of reciprocity of consequences to the process. As part of any regulation of third party litigation funding, it should be made mandatory that funders indemnify for costs the actions they fund.

QUESTION 28 ARE THERE ANY FURTHER ISSUES REGARDING FUNDING OF COLLECTIVE REDRESS THAT SHOULD BE CONSIDERED TO ENSURE EFFECTIVE ACCESS TO JUSTICE?

120. The Working Group believes that this is a question of general policy which does not raise any competition-law-specific issues.

34 Michael Legg et al, above n 65, 17-18. 35 Jeffery & Katauskas Pty Limited v SST Consulting Pty Ltd (2009) 239 CLR 75, [40].

- 26 - QUESTION 29 ARE THERE TO YOUR KNOWLEDGE EXAMPLES OF SPECIFIC CROSS-BORDER PROBLEMS IN THE PRACTICAL APPLICATION OF THE JURISDICTION, RECOGNITION OR ENFORCEMENT OF JUDGEMENTS? WHAT CONSEQUENCES DID THESE PROBLEMS HAVE AND WHAT COUNTER-STRATEGIES WERE ULTIMATELY FOUND?

121. The Working Group believes that this is a question of general policy which does not raise any competition- law-specific issues.

QUESTION 30 ARE SPECIAL RULES ON JURISDICTION, RECOGNITION, ENFORCEMENT OF JUDGMENTS AND /OR APPLICABLE LAW REQUIRED WITH REGARD TO COLLECTIVE REDRESS TO ENSURE EFFECTIVE ENFORCEMENT OF EU LAW ACROSS THE EU?

122. The Working Group believes that this is a question of general policy which does not raise any competition-law-specific issues.

QUESTION 31 DO YOU SEE A NEED FOR ANY OTHER SPECIAL RULES WITH REGARD TO COLLECTIVE REDRESS IN CROSS-BORDER SITUATIONS, FOR EXAMPLE FOR COLLECTIVE CONSENSUAL DISPUTE RESOLUTION OR FOR INFRINGEMENTS OF EU LEGISLATION BY ONLINE PROVIDERS FOR GOODS AND SERVICES?

123. The Working Group believes that this is a question of general policy which does not raise any competition-law-specific issues.

QUESTION 32 ARE THERE ANY OTHER COMMON PRINCIPLES WHICH SHOULD BE ADDED BY THE EU?

124. The Working Group believes that this is a question of general policy which does not raise any competition-law-specific issues.

QUESTION 33 SHOULD THE COMMISSION'S WORK ON COMPENSATORY COLLECTIVE REDRESS BE EXTENDED TO OTHER AREAS OF EU LAW BESIDES COMPETITION AND CONSUMER PROTECTION? IF SO, TO WHICH ONES? ARE THERE SPECIFICITIES OF THESE AREAS THAT WOULD NEED TO BE TAKEN INTO ACCOUNT?

125. The Working Group believes that this is a question of general policy which does not raise any competition-law-specific issues.

QUESTION 34 SHOULD ANY POSSIBLE EU INITIATIVE ON COLLECTIVE REDRESS BE OF GENERAL SCOPE, OR WOULD IT BE MORE APPROPRIATE TO CONSIDER INITIATIVES IN SPECIFIC POLICY FIELDS?

126. The Working Group believes that this is a question of general policy which does not raise any competition-law-specific issues.

- 27 - Annex A

List of Members of the Working Group

Name Company / Firm Country

Elizabeth Morony Clifford Chance UK

Ingo Brinker Gleiss Lutz Germany

John Pheasant Hogan Lovells UK

Andrea Appella News Corporation UK

Andrew Morrison Clayton Utz Australia

Armando Martins Ferreira Abreu Advogados Portugal

Beatrice Roxburgh British Telecommunications plc UK

Cani Fernandez Cuatrecasas, Gonçalves Pereira Spain

Chris Hersh Cassels Brock & Blackwell LLP Canada

Christoph Stadler (Dr.) Hengeler Mueller Germany

Colin Flynn Formerly with International Air Transport Association

Switzerland

Don Baker Baker & Miller PLLC America

I. W. (Weyer) VerLoven van Themaat

Houthoff Buruma Amsterdam

Jeff Blumenfeld Crowell & Moring America

Karl Johan Dhuner Dhunér Järvengren Advokatbyrå Sweden

Linda Evans Clayton Utz Australia

Marc Blessing (Dr.) Bär & Karrer AG Switzerland

Melanie Thill-Tavara Norton Rose LLP France

Miguel de Avillez Pereira Abreu Advogados Portugal

Paolo Palmigiano Lloyds Banking Group UK

Peter Armitage Blake Dawson Australia

Rosaleen Byrne McCann FitzGerald Ireland

Stefano Macchi de Cellere Jones Day Italy

Stuart Clark Clayton Utz Australia

Timur Sen SEN Law Firm Turkey