Collective redress at a standstill
While Europe introduces class actions, claimants in Swiss mass proceedings remain on their own
Back in the spring, the National Council did not even consider the Federal Council's proposal to expand class actions in Switzerland. Now, in the autumn session, the Council of States also followed this verdict. Both chambers thus rejected the introduction of new collective redress mechanisms already at the stage of the introductory debate. The warning against a "litigation industry" and the "Americanisation" of the Swiss legal system apparently outweighed the prospect of strengthening access to justice and the attractiveness of Switzerland as a judicial hub with modern collective legal protection. This means that there will be no genuine civil class actions in Switzerland in the medium term.
Many European countries are seeing a different trend. In the Netherlands, legislation enabling the collective settlement of mass claims was already passed in 2005, relying on a special group settlement procedure. This model attracted considerable international attention and served as a model for the now failed project in Switzerland. In the European Union, the so-called Directive on Representative Actions was enacted, obliging all EU member states to introduce instruments for collective redress into national law.
Comparable mechanisms also exist in the United Kingdom. This autumn, group litigation began before the English High Court in London, with around 1.6 million car owners once again suing leading car manufacturers in connection with the diesel scandal. This is the largest group litigation lawsuit in the United Kingdom to date.
Switzerland thus remains one of the last jurisdictions in Western Europe without an institutionalised form of collective redress. There has always been a certain scepticism in this country towards instruments of collective redress. However, the vigor with which parliament refused to discuss the substance of the bill is astonishing.
Financial hurdles
Collective legal protection enables claims to be enforced efficiently without calling into question the fundamental principles of civil procedure. As going to court is often too expensive for individuals, many lawsuits fail due to financial hurdles. However, as legal costs decrease proportionally as the value of the claim increases, pursuing claims collectively would be cheaper for each individual. In addition, bundling claims allows for economies of scale in legal representation and the gathering of evidence prior to the trial, which further reduces the proportional costs.
From an economic perspective, there are also good reasons to close gaps in collective redress. If claims are not pursued at all due to the framework conditions, false incentives arise and legal violations can become profitable. On the other hand, those competitors who play by the rules fall behind. The diesel scandal is a prime example of this. Swiss victims who did not join a class action lawsuit abroad have largely been left without compensation, despite being in an identical situation.
Warnings about American-style conditions are also unfounded. The Swiss litigation system has sufficient checks and balances in place to prevent the negative excesses of class action lawsuits. Unlike in the US, the losing party in Switzerland must bear all the costs of the proceedings. This also includes the legal representation costs of the opposing party. Furthermore, lawyers in Switzerland may not be remunerated on a (pure) contingency fee basis. In addition, there are no unpredictable jury decisions in Swiss procedural law. On top, the litigation financiers involved conduct a thorough preliminary assessment of the chances of success, which means that financing unpromising cases is out of the question. All in all, it would therefore not be economically viable to pursue abusive cases in Switzerland.
It remains to be seen whether the existing options for collective enforcement are sufficient, as claimed in parliament. A provisional solution was tested in the context of the diesel scandal. The Swiss Foundation for Consumer Protection had the claims of around 6,000 affected parties assigned to it and sued a large car manufacturer and importer in its own name. However, this so-called "assignment model" failed because the Federal Supreme Court denied the foundation the procedural standing. It ruled that acting as a vehicle for collective action was not in line with the foundation's statutory purpose.
What is at stake
A look at Germany and Austria shows that the assignment model can be a viable alternative to genuine class action tools in certain areas. Promising experience with this approach had already been gained there before the EU Directive on Representative Actions was implemented. In Austria, there has even been talk of the "Austrian-style class action " in this context for over two decades. It is conceivable that the model could now play a greater role in Switzerland following the failure of the bill. However, it is also clear that, following the unsuccessful attempt by the Foundation for Consumer Protection, there is still a certain amount of reluctance to embrace this approach.
Will people seeking justice in Switzerland have to increasingly go abroad to enforce their claims in cases of mass damage? This scenario would be the worst for Switzerland's reputation as an internationally renowned litigation hub. The decisive factor is whether the existing instruments for pooling claims can be used more consistently or further developed. If this is not successful, it will not only be Swiss consumers and SMEs who suffer, but also internationally active companies. They, too, will prefer orderly proceedings before a Swiss court to a class action lawsuit abroad.