European Commission Promoting Class Action In European Union

The European Commission has made facilitating private enforcement of competition laws a priority, especially in the area of class actions to complement public enforcement of European Union competition and consumer protection laws. Although some of the key developments remain in the hands of the EU Member States, the Commission is working to promote changes in national laws to enable private damages litigation across Europe. In particular, the EC currently is running two parallel initiatives to develop class actions.

The first initiative is headed by the Directorate-General Competent for Competition ("DG COMP") within the framework of private enforcement of competition law. In April 2008, DG COMP published a White Paper setting out its proposed measures and policy choices. DG COMP suggests two complementary mechanisms of collective redress:

1. The possibility for qualified entities consumer associations, state bodies, trade associations to bring collective actions on behalf of identified individuals (or, in restricted cases, identifiable victims). These entities would be designated in advance by Member States or certified on an ad hoc basis by a Member State for a particular competition law infringement.
   
2. The introduction of opt-in collective actions, in which victims of antitrust violations combine into a single action their individual claims of harm by a single defendant or set of defendants.
   

In addition, the White Paper suggests a limited system of discovery between parties.

The European Parliament is set to vote on its own report on the White Paper around 20 March 2009. This report is likely to give DG COMP the green light to go ahead with the introduction of antitrust class actions, without waiting for the second, consumer protection initiative described below. However, the report is likely to advocate that the Parliament should be involved in the legislative process, under the co-decision procedure, which is likely to further delay the process. On the basis of the Parliament's report, DG COMP will proceed with more detailed proposal of legislation.

The second initiative is headed by the Directorate-General Competent for Health and Consumers ("DG SANCO"). This effort aims at introducing a system of collective redress for victims of consumer law violations. DG SANCO published a Green Paper on Consumer Collective Redress in November 2008. This Green Paper suggests four options, one of them being introduction of a judicial collective redress procedure on a pan-European basis.

Several law firms have commented on the Green Paper on behalf of several clients, who have argued that, contrary to the Commission's assertions, the introduction of collective redress will not boost cross-border trade and that the introduction of class actions is likely to cause more harm than good. The Commission should focus on more effective ways of solving disputes between traders and consumers, notably the establishment of a better framework for handling consumer complaints by businesses and for alternative dispute resolution mechanisms. Harmonizing national consumer legislations would be more effective in boosting cross-border trade.

Later in 2009, DG SANCO is expected to present another policy paper, reflecting the comments it has received. It is likely that stakeholders will be afforded the ability for further comment on any proposal.

One policy question is whether in practice it would be workable to have two different systems, one for competition law violations and one for consumer law violations. In some cases, a victim may want to bring claims based on both a consumer law and a competition law violation. In response to this question, recently Competition Commissioner, Neelie Kroes, stated that continuing with a separate approach for competition law infringement was likely to be more efficient than implementing a horizontal framework for collective redress applicable to all infringements.

Although aggressive, U.S.-style private litigation should not soon be introduced in Europe, the EC and some Member States are advocating new litigation regimes that will bring significant changes to the legal landscape. Private litigation in England already is especially active (as discussed in this prior Alert on damages in private cartel actions in England). This will be closely watched by the EU legal and business communities.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

D & O disputes: in which jurisdiction will claims against directors be heard?

This article was prepared by colleague in London. For more information, you may contact:

Maxine Cupitt

CMC Cameron McKenna, LLP

Mitre House

160 Aldersgate St.

London EC1A 4DD

The issue of what jurisdiction a claim is brought in can have far reaching implications for D&O insurers; affecting the costs of the action, the chances of defending it and any amount ultimately payable by way of indemnity.

In a recent decision (Choudhary and Others v Bhattar and Others [2009] All ER (D) 163 (Feb), the English court has confirmed that the jurisdiction of any dispute involving a company registered in an EU member state which concerns the validity of decisions of organs of the company (such as the board of directors) will be governed by the jurisdiction of the EU member state in which the company has its seat.

This is because the court of the member state will be obliged to apply the EU Regulations that govern jurisdiction (and the enforcement of judgments). Those regulations provide that where a company has its seat in an EU member state, any dispute involving the validity of the company constitution, the nullity or dissolution of the company or the decisions of the organs of the company shall be determined in the courts of that member state. It does not matter that the competing jurisdiction is outside the EU. The key question is: where does the company have its seat? If this is outside the EU, then the regulations do not apply.

The seat of the company is determined according to the law of the EU member state whose courts are hearing the case. So if the case were being heard by the English court, the seat of the company would be the place it was registered.

In this particular case, the company was based in India but registered in England. The claimant directors alleged that the defendants had improperly seized control of the company. The case came before the English courts who concluded it should be heard in England, by virtue of the regulations. Whether the case was "more closely connected" to India or whether India was the "more natural forum" was irrelevant.

If this decision were to extend to all actions of directors of companies, then its application to claims against directors and officers would bring clarity to the law. Unfortunately, this is not the case. Where claims against directors and officers are concerned, the court will ask: what is the substance of the dispute? Is it the validity of the actions of the board? If so, the case may come within the regulation set out above. If not (say where individual directors have been charged with fraudulently appropriating company funds), then different sections of the regulations might apply. So if, for instance, either a derivative action or an unfair prejudice action under the Companies Act 2006 is brought, the court will look to the substance of the dispute not the identity of the parties to determine the correct regulations to apply to the dispute.

Let The Finger Pointing Begin

In a 23 February 2009 Business Insurance article entitled "Unpaid Premium Taxes in Europe Put Policyholders at Risk", I found myself screaming at the paper I was reading. In the article, it describes the fact that despite the landmark ruling by the European Court of Justice in 2001 which set a precedent for the payment of outstanding insurance premium tax liabilities across the European Union, the article suggests that experts in the D&O marketplace have ignored the issue. What was more amazing is that the article implies that perhaps brokers, carriers and risk managers were not fully aware. Unbelievable!

If any of these people had wanted to act properly, all that was needed was to discuss it with the international resources within the brokerage and carrier community, and they would have been advised properly on the issue. These resources who structure programs for the U.S. companies on all their other property and liability lines of business, have been addressing tax issues on policies extending to local coverage in countries for years.

I know first-hand that this issue was researched, discussed, and presentations made to management of one carrier, only to have them say that the cost associated with it (read 'being in compliance') was more than they wished to spend. Short sighted for sure. I will be curious who will take the fall for this decision when the tax bills come due.

For those unfamiliar with the case, Kvaerner plc, a UK resident company, purchased an insurance policy from a UK insurance company to cover all of its global operations. Included within its global operations was a Dutch company, John Brown Engineers en Constructors BV, which was held through a wholly owned UK subsidiary company.

The insurance contract stated that the insured could be Kvaerner itself and any of its subsidiaries and associates as instructed by Kvaerner. Kvaerner paid the full premium and passed the costs onto the relevant group companies. Without specific instruction from John Brown to do so, Kvaerner included John Brown within the insurance coverage and indirectly invoiced a share of the premium to John Brown.

Upon discovery of the insurance policy, the Dutch tax authority billed Kvaerner for Dutch premium tax on John Brown's allocated share of the global premium. In 2001, the European Court of Justice ruled that the Dutch tax authorities were entitled to collect this tax and so the decision went in favor of the Dutch tax authorities.

Under Dutch tax law insurance premium tax is levied on insurance premiums covering risks situated in the Netherlands. Location is defined as the principle establishment of the legal person and any other permanent presence of the legal person. Dutch tax law is in accord with EU law which states that every insurance contract shall be subject exclusively to insurance premium taxes in the EU country where the risk is situated. This is further described as the country where the policyholder has habitual residence or where it is a legal person.

The ECJ was asked to rule on three questions;

• Can a tax authority of an EU country levy a legal entity established in another EU country for premium taxes due on a business establishment within its boundaries where the premium was paid to an insurer based in the EU? ECJ Ruling: Yes
  
• Does it matter if the policyholder is not the overall parent company, but some other company in the group? ECJ Ruling: No
  
• Does it matter if the cost of the insurance premium is not passed on (wholly or in part) to the subsidiary company? ECJ Ruling: No. The method of payment or invoicing is irrelevant. Even if no intra-group charge exists the tax authority can still impose a premium tax levy.
  

The obligation to pay premium tax applies to any business operating within the EU, wherever the contract of insurance is entered into or where the head office is located.

The economic conditions in countries worldwide are driving their revenues down. As they look to recoup lost revenues, the simplest thing for them to do is to collect the money that is due to them by law. The premium tax on U.S. policies covering exposures 'Worldwide', e.g., D&O, Umbrella, and Professional Liability to name a few, can generate million of Euros for these countries because they can go back to 2001 and collect.

When these bills come due, it appears that the carriers, brokers, and risk managers are already preparing to plead ignorance and blame others for the problems brought on by their inaction.