The Class Action Case Files

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Just the Facts

Collective Actions in the European Union

Collective actions in the sphere of financial securities typically involve lawsuits initiated by investors on behalf of themselves and other individuals who have suffered financial losses due to the alleged misconduct of the company. Collective actions in the European Union (E.U.) developed, in large part, out of necessity following the U.S. Supreme Court’s decision in Morrison v. National Australia Bank whereby the Court cut access to U.S. courts for “foreign-cubed” cases.¹ In the ensuing decade, countries within the E.U. began developing their own collective redress regimes, resulting in several record-breaking settlements.² In turn, we have observed a 120% increase in the number of collective actions in the E.U. over the last 5 years.³ This wave of collective action litigation across the E.U. has also spurred expansions by litigation funders, U.S. litigation firms, and mass litigation units alike into European markets. This has largely been the result of jurisdictional developments across the E.U. which have made pursuing such actions more legally viable.

Key Characteristics of European Shareholder Litigation

Broadly, class action regimes are either opt-in or opt-out systems. Most European jurisdictions have adopted opt-in systems, wherein members of the class must actively choose to participate in the litigation, which are usually funded by third-party litigation funders, to secure a portion of any potential settlement. To register for an opt-in proceeding in advance of a settlement, potential claimants must first engage with the firm and funder bringing the case and are generally required to submit relevant documentation supporting their claim. Depending on the statute under which a claim is being brought, there may be additional requirements. In the U.K., for instance, claimants may need to demonstrate “reliance” on misrepresentations made by the company as a condition for certain claims. This contrasts with the U.S., where there exists a well-established presumption of reliance that courts have adopted and upheld. Further, anonymity may not always be preserved with respect claims in certain opt-in jurisdictions and your participation may become known to the general public, whereas in the U.S. only the lead plaintiff’s identity is known, and the identities of class members are kept confidential.

Introduction of the European Directive

The EU Directive on Representative Actions for the Protection of the Collective Interests of Consumers (“RAD”) was introduced on December 4, 2020, and is a major step toward protecting consumer interests under the “New Deal for Consumer” initiative that was launched by the E.U. in April 2018. The RAD directed all member states to provide their own collective action framework which would give consumers a legal avenue to seek redress as a group. Specifically, RAD’s goal was to ensure the protection of consumers’ collective interests in areas of law including financial services, passenger rights, data protection, medical devices, telecommunications, and energy.

Implementation of the European Directive

When the directive came into force in December 2020, member states had two years to implement the directive through legislation and inform the Commission. The deadline for E.U. members to transpose the RAD into their own national legislation was December 25, 2022, and the deadline for member states’ application of the newly adopted laws was June 25, 2023. Despite both deadlines having passed, countries within the E.U. remain in various stages of implementation.

Prior to adoption of the RAD, several member states already had their own collective action systems in place, such as Belgium, Denmark, and France. Despite this, only three countries met the first transposition deadline: Hungary, the Netherlands, and Lithuania. However, many other member states have since met their obligations (currently, over ten member states have completely transposed the directive), and the remaining noncompliant member states are still in the process of developing, adopting, and implementing substantive RAD-related legislation. Most recently, Germany came into compliance with the adoption of their Verbraucherrechtedurchsetzungsgesetz, or Consumer Rights Enforcement Act (VDuG).

The European Commission initiated infringement procedures earlier this year in January and sent formal notices to the 24 countries who were noncompliant with RAD at the time. At this stage, the Commission cannot impose financial penalties and is instead merely requesting information from the noncompliant countries on how they will amend their laws accordingly. Financial penalties may follow for noncompliant member states that are referred to the Court of Justice of the European Union for a second time, however.

Jurisdiction Spotlights

Post Brexit, the shareholder litigation in the E.U. is primarily concentrated in the Netherlands and Germany, though opportunities presently exist in Greece, Italy, Sweden, France, and Spain.

The Netherlands

The Netherlands has long been a popular European jurisdiction for investor litigation. In fact, four of the top 5 non-U.S. securities settlements were resolved in the Netherlands: Fortis, Steinhoff, Unilever, and Royal Dutch. In 2005, the Netherlands implemented the 2005 Dutch Act on Collective Settlements Mass Damages (WCAM), which provides a framework for large group disputes to reach binding settlements on an opt-out basis. It is important to note that the opt-out mechanism is only available for Dutch citizens, so foreign citizens will have to select to opt-in to the litigation.

The Netherlands was one of the few countries that met the initial transposition deadline. As of June 25, 2023, the new Dutch class action system, which incorporates RAD, went into effect. Overall, the Netherlands only made very minor adjustments to its existing class action regime, namely the Resolution of Mass Damage in Collective Action Act (“WAMCA”), which originally went into effect in 2020. The WAMCA permits claimants to seek monetary damages collectively as a group, whereas only injunctive and declaratory relief had previously been available, and damages required additional proceedings. As such, the Netherlands will likely continue to be a popular jurisdiction for collective actions and may even see a further uptick in class action litigation now that the new regime is being rolled out.

Germany

Germany has also been a popular jurisdiction for securities litigation. In 2005, Germany enacted the Capital Market Model Case Act (KapMuG) to address suits filed against Deutsche Telekom AG in 2002. KapMuG is a mechanism that allows courts to manage collective actions through model case proceedings. This legal mechanism covers cases for alleged false, misleading, and/or materially omitted information in the capital markets.

The German parliament, or Bundestag, adopted a bill satisfying the Directive on July 7, 2023, which was approved by the Bundesrat (legislative chamber) on September 29, 2023. The new law will result in a reorganization of the German collective redress system via the Verbraucherrechtedurchsetzungsgesetz, or Consumer Rights Enforcement Act (VDuG). As part of its implementation, the Bundestag also renewed KapMuG, originally set to expire at the end of 2023. KapMuG, which until the passing of VDuG was Germany’s only procedure for shareholder asset recovery in a class-wide opt-in basis in Germany, is now on its third extension. For now, the VDuG and KapMuG will coexist, and it is possible that issuers may face class-wide claims under both VDuG and KapMuG concurrently.

Next Steps

Broadridge will continue to monitor the implementation of the directive. Please reach out to discuss the directive or learn more about current opportunities to pursue recovery.

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References

1 F-cubed cases encompass lawsuits filed by foreign investors against foreign companies who engaged in transactions on a foreign exchange.
2 Including the €1.4 billion settlement involving Steinhoff International, and the €1.2 billion Ageas (f/k/a) Fortis settlement, both out of the Netherlands, as well as the approximately £800 million in settlements agreed upon by the Royal Bank of Scotland across several actions filed in the United Kingdom.
3 See European Class Action Report 2023 (2023), https://cms.law/en/media/international/files/publications/publications/european-class-action-report-2023 (last visited Oct 22, 2023).