Sylvie Gallage-Alwis comments on landmark consumer class action against Philips in Commercial Risk

Discussing the impact of new legislation for the claim, Sylvie commented: “The EU Directive 2020/1828 enables consumers, who would probably not have acted individually, to be represented by entities qualified to act against companies with far greater resources. By providing effective means for the enforcement of EU law protecting consumers, it is expected that companies will face an increased litigation risk.”

Sylvie explained: “The outcome of the Philips action could be a catalyst for future actions. Without prejudging its chances of success, it should be noted that this representative action follows Philips' announcement of a settlement for a similar case in the US, where Philips agreed to pay USD 1.1 billion to settle all personal injury claims from 58,000 users, without admitting any fault or liability.

“This Directive has also very practical consequences, notably in terms of financial impact. The accentuation of these risks, and their potential extent is likely to impact the cost of legal defence. The fact that companies will have to defend themselves more frequently, and against more claimants, will necessarily increase their legal fees.”

She continued: “Notwithstanding, risk managers must be prepared and ready to allocate more of their budget to legal affairs and the payment of potential convictions or settlements.

“Another risk arising from that Directive is that representative actions tend to attract media attention, which can damage a company’s reputation and consumer trust, which could result in a permanent loss of market shares.

“Risk managers should make sure that their compliance programs are at the required level, and if not, straighten them. This includes, for instance, implementing robust internal monitoring and auditing processes to ensure compliance with EU laws and regulations. Conducting comprehensive risk assessments regularly to identify potential areas of vulnerability to class action is also an efficient response that should be considered by risk managers.”

Sylvie further argued: “Companies can also work on building strong customer services and particularly enhance practices to address consumer complaints and disputes promptly, which potentially could reduce the likelihood of representative actions.

“Finally, companies shall be legally and strategically prepared to face these risks. This requires working with outside counsel to develop a strategic approach to handling potential representative actions, including early settlement options and vigorous defence tactics. 

“Due to the cross-border nature of these actions, it is strongly recommended to establish coordination mechanisms to manage cross-border litigation effectively, including collaboration with legal teams in different jurisdictions risk managers should also review and enhance insurance coverage to mitigate financial exposure.”