1.01  In our world of complex societies, where people interact daily with other anonymous people, where products and services are provided in massive standardized series by large organizations, where the financing of different economic activities is made through impersonal networks, where citizens in their daily lives are at times consumers, users, and investors, subject to the same kind of opportunities and of risks, conflicts arising from their interactions are required to be resolved by new mechanisms which differ from traditional administrative or judicial means.

1.02  In the nineteenth century, the working conditions created by an increasingly industrial society instigated a dramatic change in labour relations. Trade unionism and employment contracts negotiated in a collective manner were the result. The traditional doctrine of contracts as an expression of the free will of the parties had to be adjusted in response to this change. The solution to conflicts arising from these developments required new kinds of remedies and new kinds of proceedings.

1.03  In the twenty-first century, conflicts arising from the consumption of goods and services utilized by society find their solutions ex ante by the intervention of public regulatory authorities and, additionally, ex post through the development of collective actions by the private parties concerned. This latter development has created a change in contract law which grants a new type of protection to both consumers and investors. To render such protection effective, it is necessary to review the traditional doctrine of contract as an expression of the free will of the parties (and (p. 4) of tort liability based on fault). It is also necessary to consider mechanisms for collective redress.

1.05  However, the structure of collective redress mechanisms varies greatly between different jurisdictions. In addition, the terminology used to define them differs. In this regard, some remarks concerning these differences seem necessary.³

1.06  The term ‘class action’ could be restricted to the United States-style procedure whereby many subjects are represented by one single claimant; the term ‘collective actions’ could be confined to procedures whereby certain organizations or associations act on behalf of a number of persons (not necessarily their members). The label ‘test’ or ‘model cases’ could be ascribed to procedures in which an individual case may become the precedent for a multitude of similar cases. All these procedures have one aspect in common: ‘at the bottom of these lawsuits there are usually interests of a larger group or even a public interest although they might formally appear as traditional two-party cases’.⁴

1.07  For the purpose of this chapter, it is proposed that we reserve the term ‘class action’ for the United States-style procedure because within that jurisdiction, this mechanism for redress was initially developed as a remedy for cases where significant numbers of persons were involved in circumstances which presented the same questions of law or fact. It was first within the United States that ‘class actions’ gained an important role and became ingrained in the legal system as one of its most significant institutions.

(p. 5) 1.08  A comparative view of the procedures in other jurisdictions may therefore be usefully conducted against the United States-style ‘class action’ to discover and understand their similarities and differences.

1.09  Any national system of law is in some way reliant upon the culture of its country of origin. The close link between civil law and the cultural milieu from which it developed is a well-known phenomenon.⁵ Additionally within the scope of collective redress, the approaches of legislators, judges, and lawyers have been influenced not only by socio-political and economic factors, but also by cultural considerations. Accordingly, the transplant of United States-style class action procedures to other jurisdictions was very strongly opposed for such cultural reasons.

1.10  From a broad political point of view, European countries were used to employing the notion of ‘public interest’ to define widely held principles in society and to rely on the intervention of public regulatory authorities to protect them. The idea of ex post protection through the initiative of interested parties seemed to offer inadequate results and to make the distinction between private and public interest dangerously untidy. In the words of an American observer of the civil law world:⁶

For Continental Europeans all legal institutions, whether substantive, procedural or in the interstices, begin from fundamental premises and structures and work their way patiently towards the details. Rule 23 [of the Federal Rules of Civil Procedure] seemed like a Rube Goldberg artefact—a strange looking melange of pushes and pulls and bells and bumbles. The Rule had some goals, some standards and some procedures, but little in the way of either internal coherence or integration with larger community of means in which it was placed.

This attitude has slowly changed. Criticism not only of some of the more difficult aspects of United States-style class actions, but also of its perceived positive aspects, has been developed. The predominant criticisms of the aspects are the excessive use of class action procedures and of their occasionally abusive effects. Such criticisms increased and produced legal reform in 2005. The 2005 Class Action and Fairness Litigation Act (CAFA) facilitated the transfer of interstate class actions to Federal District Courts and removed such actions from the so-called ‘magnet’ state courts.

(p. 6) 1.11  In analysing the class action procedure in the United States, a distinction must be drawn between aspects which are only a reflection (a very enhanced one) of the typical institutions and rules of American civil procedure and aspects which pertain to the fundamental character of the class action. Pre-trial discovery, trial by jury, the way in which oral testimony is made/solicited, the conduct of cross-­examination, the wide discretion of judges during case management, punitive damages, the financing of the action by law firms, and contingency fees are all aspects which until not long ago simply horrified lawyers in civil law jurisdictions. Even today, these aspects still leave lawyers remaining very sceptical of the possibility of transplanting within their legal systems a class action procedure which requires such paraphernalia.

1.12  On the other hand, there is a growing perception that the essence of a United States-style class action does not involve vastly different procedural and socio-economic characteristics. In the words of two European observers, ‘“the kernel of the concept” of class action US style is in an opt-out procedure whereby consumers can be represented by default if given adequate notice of the action’.⁷

1.13  In the landmark case Hansberry v Lee,⁸ the Supreme Court approved representative suits as due process as long as the particular procedures used are employed fairly and adequately to protect absentee interests.⁹ In Phillips Petroleum v Shutts,¹⁰ the Supreme Court confirmed not only the constitutionality but also the necessity of the opt-out device.

1.14  What most impresses lawyers from outside the United States is the way the principle that everyone has an individual right to assert a legal claim,¹¹ and the corollary rule of ‘nul ne plaide par procureur’¹² is candidly disposed of in the class action procedure. On the other hand, outside the United States, little attention is paid to the fact that within the United States opt-out system, a class member must usually return a claim form to the court stating his or her claim within a defined period. In other words, even with an opt-out system, a class member must take active steps to benefit from the class judgment.¹³

(p. 7) 1.15  The adoption of the opt-out rule results in certain consequences in addition to the procedural rules which govern class actions. Judges must clarify with great accuracy the requirements of commonality between the parties and the adequacy of representation. The way in which notification is effected becomes essential. Case management is a priority. The waiver or potential settlement of the action needs to be scrutinized and approved by the court. Judges have the power to award a flexible range of remedies, including but not restricted to an award of damages to identified individuals.

1.16  The 26 national reports that were submitted on this subject give an interesting picture of the circumstances outlined previously.¹⁴ Some countries have introduced, or are currently proposing to introduce, new legislation regarding collective redress based on the United States model. However, these countries have either not introduced the opt-out rule or, when they have introduced it, it has been harmonized with their procedural principles. Other aspects of the United States-style class action model have not been adopted in these countries (except when were already present in their systems: eg in common law jurisdictions the rule about no shifting of costs on the losing party). Other countries have introduced a collective redress action in the form of group action by a representative body or organization. Finally, a third group of countries have only adjusted their existing procedures to the need of collective redress.

1.17  All the national reports illustrate their respective situation and even those which are limited to an answer to the questionnaire the author sent for guidance are rich in information and thoughtful remarks. This general report, therefore, will be confined to a survey of the solutions they have presented.

1.18  Amongst the countries who have introduced a class action procedure in a similar way to the United States, the rules of countries like Canada and Australia are the most similar. The Australian Federal Act initially structured the procedure as an opt-out procedure. However, a Federal Court decision¹⁵ endorsed the validity of clauses in a funding agreement which requested the member of a class to sign the agreement in order to participate in the class action. This decision created the (p. 8) equivalent of an opt-in situation, making possible what the Australian reporter Professor Camille Cameron defines as ‘closed classes’. It is notable that this solution derives from the practice of obtaining financial support for the class action not from law firms (which in Australia are prohibited to stipulate contingency fees), but from other subjects, so-called commercial funders.

1.19  In Canada, the rule in the legislation of most provinces is opt-out class action. In some provinces however, there are special provisions requiring non-residents to opt in. Public authorities, ombudsmen, and other organizations may also start a class proceeding in some provinces (although in practice it never happens).

1.20  In Israel, where—as mentioned on page 4—a Class Action Law was enacted in 2006, an opt-out system exists. A number of European countries have recently enacted class action legislation. These include Sweden in 2003, Norway in 2005,¹⁶ and Denmark in 2008. Swedish law is based on a mandatory opt-in procedure. The Danish and Norwegian rules allow for the possibility of using the system with automatic group affiliation with an associated right to opt out in certain cases.

1.21  In Italy, a new Article 140 bis, listed as ‘Class Action’ (Azione di Classe), was introduced in the Consumer Code in 2009. The concept of a class action had already been introduced by law in 2007, but it never came into force. The new provision of 2009 not only established its entry into force on 1 January, 2010, but also modified the original structure of the action. While in the previous version the redress was sought by a collective action which could be brought by consumer associations, in the new and final text the action is brought by each single person seeking redress. The structure is opt-in and the class action can be used for the enforcement of ‘homogenous, individual rights of consumers and users’. An association may have standing if the injured party grants it powers.

1.22  Another example of class action based on the United States style, but with the opt-in solution, may be found in Taiwan, where a Consumer Protection Act of 1994 and an Investor Civil Procedure Code of 2003 have regulated two kinds of class action: a class action by statutory assignment (which grants consumers’ associations the right of action for injunctive relief in the protection of public or collective (p. 9) interests) and a class action in which a representative party or an association act by way of parties’ assignment on behalf of persons who opted in.

1.23  In 1995 Portugal introduced a ‘civil popular action’, by which an individual (as in the class action) or a representative body (as in the collective action) may bring actions related to consumer protection, environment, public health, cultural heritage, or public property. It appears that the same mechanism may be employed in the protection of both the ‘diffuse interest’ and the homogeneous individual interests.

1.24  More articulated is the mechanism introduced in the Netherlands. The new Civil Code has provided for a collective action which may be started by associations representing the interested individuals, but only in order to obtain injunctive relief. A Settlement of Mass Damages Act (2005) has introduced a procedure for the collective settlement of mass claims. According to this procedure, a foundation or association representing the injured persons may request the court to declare that a settlement reached with the infringing party is fair and equitable. The decision also binds the injured persons who were not represented. He who does not wish to be bound by the settlement agreement has to declare it within a term determined by the court. The mechanism works on an opt-out basis.

1.25  In Spain, a law of 2007 has introduced a collective action for consumers’ protection. This law provides that consumers’ associations may also claim for persons not belonging to the association. The same association may also bring an action for the protection of diffuse interests. Recently a new kind of action against gender discrimination was introduced where, again, associations have standing.

1.26  A somewhat similar mechanism operates in Austria, where on the basis of existing legislation,¹⁷ a kind of collective litigation was developed: several claims of harmed individuals are assigned to an association. This solution has been defined as ‘the Austrian model of the class action’, but projects for an organic legislative intervention on the matter are pending.

1.28  The wide-ranging object of this action is explained by the circumstance that, according to Article 82 of the Code, the entities who have collective standing for bringing it are:

1. 1)  the Office of the Attorney General;

2. 2)  the Federal, State, or Municipal Government;

3. 3)  the Federal District; entities and agencies of the direct and indirect public administration, including those without legal personality, specifically designed for the protection of the interests and rights protected by the Consumer Code; and

4. 4)  associations legally incorporated for at least one year, whose institutional purpose include the protection of the interests and rights protected by the Consumer Code.¹⁸

1.29  The circumstance that the Attorney General (Ministerio Publico) has standing gives the action the flavour of a public action. The Ministerio Publico in Brazil is a completely independent body, which performs its task with vigour.

1.30  Another country which has chosen to confer to a public body the action for protecting the collective interests of consumers and users is Finland, where an act, which came into force in 2007, establishes that the Consumer Ombudsman is the primary actor to bring the action as representative of the class. Individuals have a right to act only if the Consumer Ombudsman has decided not to do so.

1.31  Other countries are experimenting with different solutions and are approaching the idea that a more thorough and complete intervention will eventually be needed. In England, the Civil Procedure Rules enacted in 1999 introduced the Group Litigation Order (GLO), a flexible procedure allowing for a register to be established where a number of claims give rise to common or related issues of fact or law. Exercising powers under a sort of case management, the judge may order that persons which a claimant claims to represent be notified and allowed to opt in. The controversy may then be resolved in one single proceeding. It has to be noted that persons who opt in become parties in the proceedings, so that the GLO may be considered as a sort of organized multi-party proceeding.

1.32  In Germany, where legal circles appear to be fiercely opposed to the introduction of class actions or a collective redress mechanism, a test case procedure in the field of securities was enacted in 2005: the Capital Market Model Case Act (Kapitalanlage—Musterverfahrensgesetz—KapMuG). Under the KapMuG, where several claims are brought for damages due to false, misleading, or omitted public (p. 11) capital market information, a model or test case proceeding can be commenced in order to decide on issues of fact or law which are common to all cases pending and being related to the same dispute. Such proceeding(s) can be established upon the application of one of the parties and the opting-in of nine other plaintiffs. The Court having jurisdiction for the model case proceeding (Higher Regional Court) then has to select the case of one plaintiff as the model case. All other cases pending will be suspended ex officio and the decision on the model case will be binding also for them.

1.33  In France, similar discussions about group actions are fervid and many proposals have been put forward in an official way. Two kinds of actions, however, are in existence in France:

1. 1)  L’action d’intérêt collectif, or l’action en cessation d’agissement illicite, which allows consumers’ associations registered in an official list to bring claims against the infringement of a collective consumer interest or a collective interest of investors. This kind of action is in line with the European Community directive on consumer protection.

2. 2)  L’action en representation conjointe, which is based on a proxy to claim for damages granted to an association agrée être connue representative sur le plan national. Both actions are not much used in practice. The second one, in particular, meets a limit in that ‘le mandat ne peut être sollicité par voie d’appel public télévisé on radiophonique, ni par voie d’affichage, de tract ou de lettre personnalisée’.¹⁹

1.34  The reports from Mexico, Venezuela, and Argentina indicate that in those countries collective redress proceedings are based on an action of constitutional character (amparo) which is envisaged as an action to be employed by public bodies or local communities to protect diffuse and collective interests.

1.35  The reports of other countries (Belgium, Greece, Hungary, Poland, Scotland, and Switzerland) show that the issue of collective redress has sparked interest, debates, and proposals for the introduction of new forms of action. However, the proposals are yet to be definitively approved. The different solutions presented by the reports for each country offer food for thought on one of the fundamental issues which the globalization of economic and social life poses in our time.

1.36  It is a common experience that consumers’ and investors’ contracts often have a transnational character. As a result of this characteristic, mass damages may be (p. 12) caused by firms who are located and/or operate in countries different from the countries where the consumers or investors live. Countries such as the United States, which have developed class action as an effective remedy for the protection of the public, have been made aware of this problem especially in the area of international securities litigation.

1.37  The Court of Appeal for the Second Circuit in Morrison v National Australia Bank Ltd,²⁰ elaborated a double test to affirm its jurisdiction: when the fraudulent conduct of a foreign financial institution has specific and relevant consequences within the United States (effect test) or, alternatively, when such conduct is performed within the United States (conduct test).²¹ Its approach has been restricted by the United States Supreme Court decision of 24 June, 2010²² on the same case: on the basis of a general presumption against extraterritoriality of United States jurisdiction. The Supreme Court excluded the notion that United States courts have jurisdiction in foreign-cubed litigation, ie in collective actions where none of the elements (nationality of claimants, seat of the financial institutions, place of negotiations of the securities) is connected with the United States.²³

1.38  Another development of class action within the United States and one of the most controversial is the adoption of this procedure in the field of arbitration. Courts have moved from the consideration that only parties to a particular contract (or set of contracts) could participate in arbitration proceedings, and have begun to hold that class actions may in principle be asserted in arbitral proceedings if the parties’ agreement explicitly so provides and also in some cases (on the basis of the unconscionability doctrine) when it expressly excludes it.²⁴ The American Arbitration Association (AAA) has adopted for class arbitration rules based on rule 23 of the Federal Rules of Civil Procedure. The recent case Stolt Nielsen SA v Animalfeeds Int Corp,²⁵ however, seems to be more restrictive on the possibility of class arbitration in situation where the arbitration agreement is silent or ambiguous.²⁶

1.39  Although frequently classified as a ‘uniquely American’ device, class action arbitration is expanding outside the United States. Class arbitration may involve (p. 13) non-United States parties. Collective relief has been sought in some specialized arbitral procedures, like the ICSID (International Centre for the Settlement of Investment Dispute) Rules. A movement for the introduction of collective proceedings also in arbitration is present in many countries.²⁷

1.40  The developments of international class action make urgent an integration or, at least, a coordination of different substantive rights and procedural actions of consumers and investors at the translational level. How can such integration and/or coordination be reached? Enormous political and economic problems have, of course, to be solved. But in order to prepare the ground for their solution, something may be done or even must be done from a purely legal point of view.

1.41  Comparative law scholars are called to the task of analysing the questions which collective redress mechanisms pose in each jurisdiction and to see what kind of solution may be offered. Studies and essays in this field are already very numerous. One study which represents a generous attempt to give an answer to the difficulty that civil lawyers meet when dealing with ‘class actions’ is published by Antonio Gidi. In his work, Gidi publishes a class action code which acts as a model for civil law countries.²⁸

1.42  At the European level, a harmonization of different solutions adopted by the State legislations has to be reached. Notwithstanding the Brussels I Regulation on mutual recognition and enforcement of judicial decisions, such a harmonization is necessary to avoid the scenario where a judicial decision in one set of class action proceedings issued in one country is not acknowledged in another country because that decision is considered to be ‘manifestly contrary to public policy’, as, for instance, that country has introduced ‘opt-out’ class actions.

1.43  The reports which were submitted from European countries also confirm one common trend which has already been noted,²⁹ namely the desire to find a model of collective redress procedures which is distinct from that of the United States class action and which draws upon more specific European concepts.

1.44  The preference for the opt-in regime, the role of consumer associations and of public entities (Ombudsman, etc), the check on the admissibility of the collective (p. 14) claim, and the more limited scope of collective redress procedures may be seen as aspects of the different model emerging in European countries, together with the refusal of American procedural devices such as discovery, punitive damages, jury system, and contingency fees.

1.45  This process of creating a more harmonized development of collective redress procedures in Europe could be sustained by the European Union’s policy as it has been indicated in the Green Paper on Consumer Collective Redress.³⁰