Ideas for pan-European legislation on class-action legislation - ‘representative’ or ‘collective consumer redress’ actions - are now being considered. Under the general objective to give much-needed teeth to consumer enforcement mechanisms in Europe, the rights for securities-owners may be in view, but not top priority. While legislative packages are coming to life on a national basis, so far they have made it to only 11 of the Euro-zone’s 27 member states.

Initiatives for a consolidated European approach so far include one pilot study organised by the European Commission, and another to start soon. The study authors will no doubt examine the German Capital Markets Model Case Act of 2005. This applies to claims for compensation due to false, misleading or omitted public capital markets information.

The study will investigate France, where the government dropped draft legislation to allow class action-style suits following lobby protests based on risks to business. However, representative actions are possible, and are being used by shareholders of Vivendi, which fell from grace in 2002.

Relevant to the Brussels-based debate is an agreement reached in April by Royal Dutch Shell to pay non-US institutional shareholders a settlement of approximately $450m (€335m), following company overstatements of its underground oil reserves.

The matter was dealt with under a new Dutch statue on legal settlements. However, litigation in Europe bears no relation to its US class action relative. In the US, claimants do not have to be identified by name. They have only to fall into the class, whose definition, and risk, may be defined by a court.

Europeans want all plaintiffs named and signed. Paul Hermant, senior partner in the Brussels law office of Bird & Bird, says: “My guess is that punitive damages, which are key to the success of class actions in the US, would probably never be accepted in Europe.”

Not surprisingly, a representative from the world of investors took a contrasting approach. René Maatman, head of legal and fiscal matters at ABP Investments, the Dutch civil service pension fund, says: “I think that the call for compensation for deceived investors is appropriate.”

Other pension funds were more wary. Marta Maldonato Passanhar, of APFIPP, the Portuguese investment and pension fund association, and Angel Martinez-Aldama, of INVERCO, a similar association in Spain, urges caution. “If the Commission wants to empower consumers, we’d rather see it coming through shareholder activism.”

While the debate as far as securities owners in Europe is in its early stages, note should be taken of pioneering moves to bring redress mechanisms to consumers of products and services across EU national borders.

Meglena Kuneva, the European consumer affairs commissioner, is pushing this hard. Clearly Kuneva, a Bulgarian national and only several months in office, intends to make her mark on Brussels with this and probably with parallel moves. Mortgage credits are on her list.

A major consumer lobby in Brussels, Bureau Européen des Unions de Consommateurs (BEUC), expressed a strong need to strengthen the position of consumers’ claims across the legal systems of EU countries.

However, its senior legal adviser, Cornelia Kutterer, regretted the time delay before any cohesive European system may emerge. For shareholders, it would take at least until late 2008 for the Commission to set its own position.

After that, the European Parliament and Council of Ministers would absorb another year in its machinations. Any implementation of a directive would take two more years. If that already sounds sluggish, in March 2003, a text adopted by the European Parliament put in writing intentions to enhance consumer protection. It noted the need for a single (EU) market in sectors such as
investments.

In the meantime, European business is itself diving straight into class actions in the US. The Institutional Shareholder Service (ISS) finds this practice to be growing. Adam Savett, head of securities class actions at ISS, supports the trend.

The corporate governance organisation has discovered that every year since 1999 at least one international institutional investor seeking to serve as a lead plaintiff in a class action.

The investors that filed the most lead plaintiff motions were Activest, the German asset manager that is now part of Pioneer, various DekaBank institutional investment entities, and Metzler Asset Management.

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