Collective redress has been one of the most debated topics in the field of civil procedure over the last decades in both Switzerland and the European Union. Recently, there have been several new developments: In the European Union, member states are in the process of adopting national laws implementing the EU directive on collective redress, with the deadline for implementation of December 2022 fast approaching. In Switzerland, the Federal Council submitted its proposal for collective redress measures to Parliament in December 2021, where it is currently considered in the legal commissions of both chambers of the Parliament. This article sets out and assesses key points of the Federal Council’s proposal against the background of the collective redress measures in the European Union.

By Thomas Werlen / Konstantin Oppolzer / Jonas Hertner (Reference: CapLaw-2022-16)

1) Overview

In this article we set out and assess key points of the Swiss Federal Council’s proposal on collective redress measures (BBl 2021 3049) (“Proposal“), also considering the collective redress measures recently introduced in the European Union. We first recall the need for collective redress measures in Switzerland (below 2.). Subsequently, we set out the key elements of the Proposal, which was submitted to Parliament, together with the Federal Council’s dispatch (BBl 2021 3048) (“Dispatch“), on 10 December 2021 (below 3.). As an excursus, we review the current situation in the European Union, where collective redress measures were adopted with the directive on representative actions for the protection of the collective interests of consumers (2020/1828) (“EU Directive“) and member states have until 25 December 2022 to implement the EU Directive into their national laws (below 4.). We then assess the Proposal taking into account the EU Directive (below 5.). Finally, we give a short outlook on collective redress in the European Union and Switzerland (below 6.).

2) The current situation in Switzerland

Individual claimants, in particular private individuals and small and medium-sized companies, who seek compensation for damage that can be described as dispersed damage (small damage suffered by a multitude of persons, e.g., excessive credit card charges) or mass damage (considerable damage suffered by a multitude of persons, e.g., damages to the health of patients due to defective medication) regularly face an uphill battle when trying to enforce such claims in legal proceedings in Swiss courts.

Already in 2013, the Swiss Federal Council described the Civil Procedure Code (“CPC“) in its current form as lacking effective tools for collective redress (VPB 2013.7a, p. 101–102; BBl 2021 3048, p. 7). This is primarily because the CPC is based on the concept of an individual proceeding between single or several parties, but not proceedings involving hundreds or even thousands of injured parties. Indeed, the instruments for collective action, which the CPC provides in its current form, such as the joinder of parties or joinder of actions or a group action, have not proven adequate substitutes for effective collective legal action from any perspective.

The gaps in this regard in the current law have been demonstrated by a number of cases in Switzerland in the recent years. Among the more prominent cases is “Dieselgate”, in which the Swiss Federal Supreme Court denied the claimant Stiftung für Konsumentenschutz (“SKS“), a consumer protection association, the right to represent approximately six thousand damaged parties, who had assigned their claims – all arising from essentially the same set of circumstances – to SKS, against Volkswagen and AMAG due to formal issues. The damaged parties are instead expected to bring their claims individually against Volkswagen (to the extent their respective individual situations allow).

As noted by the Swiss Federal Council, enforcing claims arising from mass damage or dispersed damage situations can be problematic for individual claimants. Particular hurdles include the fact that individual claimants may lack the funds required to conduct thorough evidence-gathering, to obtain expert opinions and to instruct specialized attorneys. Corporate defendants, in turn, may have made provisions for costly litigation and would typically be represented by specialized law firms that have litigated similar cases for their client and thus have built up considerable experience and information on the matter in dispute.

Certain features of the Swiss legal system exacerbate the disadvantages of individual claimants in such situations. Among other factors, Switzerland is an expensive place to litigate comparatively small claims: In some cantons, procedural costs can easily amount to the claim in question if smaller claims are brought before court (whereas Switzerland is often chosen as a forum with reasonable procedural costs if the amount in dispute is high). For individuals that are neither wealthy nor poor enough to benefit from legal aid, legal proceedings can thus pose a considerable financial risk. The same applies for small and medium sized companies. Both, however, may be exactly the damaged parties in a case such as “Dieselgate”.

Swiss procedural law is furthermore restrictive regarding requests to obtain evidence in the possession of the other side. At the same time, Swiss courts apply a high standard of proof and generally expect a high quality and quantity of evidence to be provided. It requires well-versed attorneys to navigate evidence related questions in proceedings. Again, this leaves individuals and small and medium sized companies in a problematic asymmetric position when they litigate against corporations about products or services they provide.

The Swiss Federal Council concludes that these factors result in an asymmetry between claimants and defendants which in many cases essentially bar injured parties from obtaining just compensation for dispersed or mass damage. Against that background, it is today widely accepted that there is a gap in legal protection for individuals and small and medium sized companies with legitimate dispersed and mass damage claims in the Swiss legal system which needs to be addressed.

3) The Swiss Federal Council’s proposal

As described in section 2 above, the Swiss Federal Council identified in 2013 the need to close the gap in legal protection for parties injured dispersed or mass damage situations (VPB 2013.7a, p. 61; BBl 2021 3048, p. 2). In 2018, the Federal Council thus included a proposal on certain collective redress measures in the context of the revision of the Civil Procedure Code (“CPC“) in its consultation procedure (https://www.bj.admin.ch/ejpd/de/home/aktuell/news/2018/2018-03-02.html; BBl 2021 3048, p. 2). Due to considerable opposition towards the proposal, the Federal Council subsequently decided to separate it from the remaining revision of the CPC. Finally, on 10 December 2021, the Federal Council submitted the Proposal and Dispatch to Parliament. The Proposal now includes the following (BBl 2021 3048, p. 2–3; BBl 2021 3049):

1. The scope of the already existing group action, which allows certain associations to bring claims on behalf of a group (Art. 89 CPC) is to be expanded: While in its current form the group action is limited to violations of the personality of the members of a group, the Federal Council proposes to apply it also to other violations of rights. As before, the group action shall, however, be directed at the omission or correction of a violation of the law or the determination of the unlawfulness of a violation (BBl 2021 3048, p. 2).
   
2. In addition, certain associations shall be authorized to bring monetary compensation claims: such associations may bring an action in their own name and at their own risk asserting claims of individuals who opted-in, either by a prior authorization or by expressly joining the action (BBl 2021 3048, p. 2-3).
   
3. Furthermore, the Federal Council proposes new rules on collective settlements. Collective settlements shall generally be binding for all individuals opting in. However, under certain circumstances, there shall also be the option of opt-out settlements which include affected persons not having opted-out. Collective settlements shall furthermore be applicable outside of an action by the association (BBl 2021 3048, p. 3).

The Proposal is due to be discussed in the legal commissions of both chambers of Parliament starting in May 2022, before it will be sent to Parliament for consideration. In any event, an adoption of any collective redress measures will not take place before 2023.

4) Excursus: Efforts within the European Union to remedy the consumers’ gap in legal protection

Efforts to introduce collective redress measures have been underway in many jurisdictions with a civil law tradition, notably also in European Union member states. In the European Union, the European Commission, in 2013, published recommendations for member states to introduce collective redress mechanisms into their legal systems (2013/396/EU). In 2018, the European Commission submitted its proposal for the EU Directive to the European Parliament and the Council of the European Union (COM(2018) 184 final, 2018/0089(COD)). The EU Directive, which is based on the European Commission’s proposal, was adopted on 25 November 2020, setting member states a deadline to implement its provisions until 25 December 2022 (Art. 25 EU Directive).

The EU Directive emphasizes ensuring that a representative action mechanism for the protection of the collective interests of consumers is available in all member states as its primary objective (Art. 1(1) EU Directive). Key provisions include:

1. The EU Directive’s scope is limited to certain EU regulations as well as directives with national acts implementing them (Art. 2 EU Directive). Furthermore, it only applies to ‘consumers’, i.e. natural persons acting for purposes outside their business, who can institute proceedings against ‘traders’, i.e. any natural person or any legal person acting for purposes relating to that person’s business (Art. 3 EU Directive).
   
2. Member states have to ensure that qualified entities they designate based on certain criteria (Art. 4 EU Directive) are entitled to seek injunctive measures and redress measures (Art. 7 EU Directive). Such redress measure may include opt-in and opt-out measures, the decision of which to choose, rests with the member state (Para 43 EU Directive).
   
3. Member states shall ensure that, where a representative action for redress measures is funded by a third party, conflicts of interests are prevented and that it does not divert the representative action away from the protection of the collective interests of consumers (Art. 10 EU Directive).
   
4. Member states shall ensure the option of collective settlements that need to be approved by authorities (Art. 11 EU Directive).
   
5. Member states shall ensure that, where a qualified entity has provided reasonably available evidence sufficient to support a representative action, and has indicated that additional evidence lies in the control of the defendant or a third party, if requested by that qualified entity, the court or administrative authority is able to order that such evidence be disclosed by the defendant or the third party in accordance with national procedural law, subject to the applicable Union and national rules on confidentiality and proportionality (Art. 18 EU Directive). 

The EU Directive effectively introduces a minimum standard of collective redress for the European Union. Member states, however, have considerable leeway in the implementation. In particular, member states are to choose whether they want to allow comprehensive opt-out measures or limit the collective redress measures to opt-in measures. The same applies for the requirements for qualified entities. The harmonization effects of the EU Directive will thus likely be limited. Furthermore, Annex I of the EU Directive limits the collective redress tools to certain EU legislative acts, and thus the measures being implemented will not create a general right to collective redress.

One of the provisions of the EU Directive that is described as having the most potential to reduce the asymmetry between consumers and corporations is that it allows claimants under certain circumstances to request evidence in the control of the defendant or of a third party. This measure addresses the informational asymmetry that regularly hinders the successful enforcement mass or dispersed damage claims. While the impact of the provision in practice and in particular its interplay with local procedural rules will have to be awaited, it may, as a gateway to a more comprehensive discovery process, form a key element for allowing consumers not just to bring their claim but to also have the chance to succeed with it.

5) Assessment of the Swiss Federal Council’s Proposal

The collective redress measures as now proposed by the Federal Council are certain to trigger a lively discussion in parliament, where industry interests are likely to try to water down the proposal, and consumer protection interests are expected to request that measures are further expanded. It is however expected, given the long process leading up to this proposal, during which the different interest factions had ample opportunity to provide input, that parliament will act on the widely accepted view that there is a gap in legal protection for a certain group of injured parties in certain situations which needs to be addressed.

It will likely help that, in comparison with the EU Directive, the Proposal is relatively straightforward and avoiding unnecessary complexity. The Proposal reaches further than the EU Directive, allowing not only consumers but also small and medium sized companies to benefit from collective redress, and the Proposal is furthermore not limited to only certain laws as the EU Directive is. However, the Proposal does not include an opt-out model of representative action as the EU Directive does.

As a further notable point, the Proposal also seeks to address the issue of excessive costs in cases with relatively low amounts in dispute. In particular, the measures proposed are meant to allow for the bundling of claims in a way that synergies can be created, such as the commission of expert opinions by a group of claimants instead as by one single claimant.

At the same time, unlike the EU Directive, the Proposal does not include additional tools for claimants to obtain evidence through discovery proceedings.

6) Outlook

Recent developments in the European Union demonstrate that there is political consensus to be found on the issue of collective redress. The need for such measures is in fact well established. In Switzerland, where certain features of the legal system exacerbate the hurdles for injured parties effectively to obtain compensation for legitimate claims, there is a gap in legal protection to be filled. We expect thus that the Proposal now to be discussed in Parliament is susceptible for a political compromise, and that it will lead the way to an implementation of veritable collective action tools, to some extent perhaps inspired by the legislative projects underway in European Union member states.

Thomas Werlen (thomaswerlen@quinnemanuel.swiss)
Konstantin Oppolzer (konstantinoppolzer@quinnemanuel.swiss)
Jonas Hertner (jonashertner@quinnemanuel.swiss)