16 September 2003

John Kadelburger, Petter Nilsson

In the April 2002 edition of our newsletter, we reported that Sweden was planning to enact new legislation to introduce class actions – a familiar concept in the US – as a new form of litigation. The Swedish Act on Group Proceedings ("the Act") came into force on 1 January 2003 and a test case is pending.

Finland and Norway are currently considering whether to follow suit but discussions are in their initial stages and it is likely to take some time before legislation is enacted. Also, plans are afoot to introduce similar legislation in The Netherlands.

A broad interpretation of some European legislation in the consumer[1] field could prompt other Member States to introduce class actions into national legislation. Article 65 of the EC-treaty provides the EU with a general right to intervene in and issue directives in respect of judicial proceedings in the Member States although certain preconditions must be met before the EU can exercise this right. Furthermore, resistance to class actions allegedly resides within the EU for reasons similar to those voiced by the critics of the new Swedish legislation and explained below. Whether or not we will see a harmonised system within the EU for group actions and how long it will take remains to be seen but we will certainly keep you informed.

The Act recognises three different types of group actions; namely private group actions, organisation actions and public actions. A private group action may be instituted by any natural person or legal entity provided that he or it is a proper claimant in the action. An organisation action may be instituted by any non-profit organisation or association that protects consumer or employee interests in certain disputes whereas a public group action may be instituted by an authority which is considered suitable for representing members of the group (the suitability of an authority to bring a public action is determined by the Government)

The Act identifies certain preconditions to bringing a class action. By way of example, the Act provides that the class action must be founded on circumstances that are common or of a similar nature and that the group must be appropriately defined (taking into consideration its size and ambit). Some features of the Act include the following:

  • parties who wish to participate in the action or become part of the class must "opt-in" i.e. notify the court that they wish to be included in the action upon receipt of notice by the Court that an action is pending;
  • a private group action and an organisation action must be conducted through an attorney who is a member of the bar; and
  • a settlement concluded on behalf of the group must be approved by the court.

One of the Act’s main purposes is to facilitate greater opportunities for claimants to have their cases tried thus increasing access to justice. However, during the consultation period, concern was expressed that the Act would lead to the opening of the "floodgates" and would encourage vexatious litigation. There were also fears that the new Act would deter investments in Sweden. The general consensus is that these fears will not be realised. The Act is not likely to prompt a surge of private class actions because damages are limited under Swedish tort law. In addition, the Act has placed limitations on the type of fee arrangements which may be entered into between the claimant and his lawyer. If the fees payable depend on the outcome of the case then the arrangement must be approved by the court and must be reasonable. The Act also makes it clear that, in the event of an unsuccessful action, the group is liable to pay the defendant’s legal fees which could be substantial. However, critics of the Act remain concerned that it is ripe for abuse in that plaintiffs will be able to blackmail corporate bodies by threatening to "go public". Although against this, one advantage to a corporate body is that it may be able to settle a large number of claims through a single action and the Act will also help to keep corporate behaviour in check which is in everyone’s interests.

The likelihood of European wide/international claims will depend on whether the Swedish court will assume jurisdiction according to Swedish procedural law. The Act is not expected to be used for environmental claims which generally relate to licensing by authorities; naturally, there are few private claims in this field.

In the test case now pending, the defendant is the former owner of a now insolvent travel agency called Aer Olympic. It was discovered that the defendant had removed a large amount of cash from the travel agency’s bank accounts shortly before it was declared insolvent. The defendant was sentenced to imprisonment in 2003 for defrauding creditors.

The class action has been initiated by a private person who purchased air tickets from Aer Olympic. Needless to say, Aer Olympic’s insolvency rendered the tickets worthless. The claimant alleges that the defendant’s withdrawing of the cash caused Aer Olympic to become insolvent and consequently, caused his tickets to be rendered worthless.

The class action is in its initial stages. The District Court of Stockholm has recently sent a letter to all the members of the class identified by the plaintiff (around 1,000 private persons who purchased air tickets from Aer Olympic which became worthless) notifying them of their entitlement to "opt-in".

A preparatory oral hearing is planned to take place later this year. We shall keep you posted!

Written by John Kadelburger & Petter Nilsson.


[1] See the Council Directive 93/13/EEC of 5 April 1993 on unfair terms in customer contracts and Directive 98/27/EC of the European Parliament and of the Council of 19 May 1998 on injunctions for the protection of consumers' interests.