Is the EU Priming to Introduce a Collective Redress Mechanism?

11th Mar 2016

By: Scévole de Cazotte – The European Commission has called for Volkswagen to pay compensation to European drivers who purchased vehicles with emissions test-cheating software, though it admits it has no authority or mechanism to do so.

The problem with Volkswagen’s vehicles was discovered in September, when the company admitted its diesel vehicles passed U.S. tests by using “defeat device” software to mask nitrogen oxide emissions.

In Europe, VW has promised to remove the device without charge to consumers, but has not announced plans for compensation.  Volkswagen claims it has done nothing illegal under EU law and that its consumers have not suffered a loss.  A spokesman for the company in the UK stated: “We don’t see the case for compensation for two reasons.  One is that the vehicles are going to be fixed.  There is no hindrance and people can continue to use their vehicles normally.”  The representative also pointed out that historically, recalls do not reduce resale value.

But Elżbieta Bieńkowska, a former deputy prime minister of Poland who overseas EU industry policy, has asked VW to reconsider compensating the 8.5 million European owners of VW cars fitted with the software.  Ms. Bieńkowska has admitted she has no formal powers to force a payout because the legal framework in the EU differs substantially from that in the United States.

Globally, the company has made a provision of £6.7 billion ($7.3 billion) for the repair process.  The company is also facing fines of up to $46 billion in the U.S. for allegedly violating environmental laws.  And in the U.S., the company has volunteered to pay $1,000 per vehicle owner (£704) to 500,000 owners in the form of a prepaid Visa gift card and dealership credits.  Volkswagen describes the compensation as a goodwill gesture.

None of this has stopped eager U.S. lawyers from suing.  Law firm advertisements abound online—with names like “VWrecallattorneys”, “carfraudsuit”, and “dreamlegalteam”—urging VW owners to join various class action lawsuits.  The lawyers, of course, will reap huge profits from any settlements or judgments, while the return for each consumer in this type of case is traditionally modest.

How does this affect the EU?  Beginning this year, the European Commission is set to review Member State implementation of its Collective Redress Recommendation, with the potential of initiating legislating to create an EU-wide device for collective litigation as early as 2017.  Could this call for compensation in a highly publicized situation be the first step in building the case for a unified collective redress mechanism?

It is certainly a time-honored play from a litigation playbook:  latch on to a well-known problem involving a large corporation; claim that consumers are disadvantaged; and argue that litigation will solve the problem.  Only this is the playbook of U.S. claimants’ lawyers, whose litigation-hungry tactics have helped to create a legal system in the U.S. that most Europeans say they do not want to duplicate.

Are EU leaders running the same play to build support for an EU-wide collective redress mechanism?  Time will tell, but if there is a genuine claim for compensation, a more constructive process exists that is consistent with current EU policies: Alternative Dispute Resolution, or ADR, mechanisms that allow consumers and companies to resolve claims outside of the courtroom.

It is surprising that the Commission has not touted this solution; its July, 2013 Directive on Consumer ADR promotes precisely that approach.  The Directive introduced reforms to assure that ADR benefits both businesses and consumers by improving the quality and increasing the use of ADR, which is widely acknowledged to be a cheaper, faster and simpler alternative to litigation.

That’s a page from a playbook that makes sense in the EU.