EU Small Claims Procedure

Proposed changes to the European Small Claims Procedure could, potentially save €325 to €418 million euros consumers and businesses in the EU by making the procedure faster, simpler and cheaper especially for SMEs, said the European Commission when announcing the proposal last week.

In force since 2009, the European Small Claims Procedure (ESCP) is an alternative mechanism for civil and commercial cross-border claims which do not exceed the value of €2000. The main feature of the ESCP is that it is a simplified written procedure on the basis of standard forms, where representation by a lawyer is not compulsory and the use of electronic means of communication is allowed, since at least one of the parties involved resides in a different Member State from that of the court deciding the case.

Six years after the entry into force of European Small Claims Procedure under Regulation 861/2007, as required by Article 28 of the Regulation, the Commission has reviewed the operation of the ESCP in a Report assessing the application of the procedure in all Member States (except Denmark which opted-out).

Based on this, Commission has presented a proposal to amend the Regulation in order to introduce practical changes improving the efficiency and usefulness of the procedure for both consumers and enterprises.

The key change proposed by the Commission would be to raise the threshold for filing an application under the ESCP to €10,000 in order to make it more attractive to consumers and businesses involved in low-value cross-border disputes.

This briefing will outline the key findings of the Commission’s review and will then analyse the proposal presented by the Commission to amend the ESCP Regulation.

The Report on the Review of the ESCP

The Report states that in general terms the ESCP has proven to be a useful tool for solving cross-border litigation for small disputes. On average it reduced costs by up to 40% and the length of procedures from an average of 2 years and 5 months to an average of 5 months.

However, despite being simpler and cheaper than similar national procedures, the recourse to the ESCP is still limited due to the lack of public awareness of its existence. This is one of the main four problems identified by the Commission as limiting the success of the procedure:

Threshold for Claims

The current Regulation applies where the value of disputes is below €2000. According to the Commission, this threshold does not raise issues for consumers but it does for businesses. In particular, it limits the access to the procedure by SMEs, since only 20% of business claims are below €2000, while 30% are between €2000 and €10,000.

Therefore, for claims exceeding the threshold set in the Regulation undertakings need to use national procedures, if and where they are available. The Report also notes after the introduction of the Regulation there was a general trend is to increase national thresholds. Furthermore many Member States now have simplified procedures in place: even though thresholds in national regulations greatly differ (from €600 in Germany to €25,000 in the Netherlands).

For these reasons the Commission considers that the threshold set by the ESCP Regulation should also be raised.

Territorial Scope

The current rules state that the ESCP only applies if at least one of the parties is domiciled or habitually resides in a Member States different from that of the Court that is seized for the small claim procedure.

The Commission considers this definition of the cross-border element is too narrow, pointing out that, disputes between parties domiciled in the same Member States but with a cross-border element are excluded from the scope of the Regulation. This is the case for example:
• If the contract must be performed in another Member State, e.g. the lease of a holiday house abroad; 
• where an incident has taken place in one Member State involving two nationals who share the same nationality but come from a different Member State, e.g. a car accident in a border region or on holiday;
• If the judgement must be enforced in another Member States, e.g. where the judgement applies to the defendant’s salary received in a bank account in another country.
Furthermore, the Commission observes that situations where the dispute is lodged before a court in the EU by or against third countries nationals also fall outside the scope of the Regulation, for example complaints from EU consumers against businesses located in a third country. For these situations, the solution is to make the ESCP available in all cases where a cross-border element is present, including claims involving third countries.

Procedure

The Report focuses on many procedural aspects of the ESCP which could be improved in the Commission’s view:

Use of Distance Communication for Hearings

Under the current rules, while the ESCP is in principle a written procedure, oral hearings may be held if deemed necessary by the court or requested by a party. In practice, the physical presence is often requested, resulting in unnecessary costs and delays for the party forced to travel to another Member State.

Despite encouragement to use video-conferencing or other distance communications means, even in Member States where these facilities are available (Austria, Cyprus, Greece, Finland, Luxembourg, Malta, Netherlands, Portugal, Sweden, and the UK) the final decision depends on the judge. Therefore, the Commission believes that use of distance communication should be required;

Use of Electronic Communications for Service of Documents

Article 13 of the Regulation, requires postal services to be used as the only valid method for serving certain procedural documents (e.g. service of application on the defendant, service of judgement on the claimant and on the defendant) unless such services are unavailable. Therefore such documents cannot be sent electronically under the current rules despite this being possible in some Member States; The Commission considers that communications between the parties and the courts could in principle be made by electronic means to save time and costs notably in regards to the service of documents.

Court Fees

A significant obstacle to the recourse to the procedure is how disproportionate court fees are compared to the value of the claim: this is the reason why 45% of businesses refrain from going to court according to a recent Eurobarometer. In this respect, great differences exist between Member States which apply different calculation methods or establish minimum court fees. In the Commission’s view, the procedure could be more attractive and transparent by putting a cap on court fees.

As for translation costs, the Commission notes that the translation of the certification of enforcement of the judgement (form D) by a certified translator in unnecessary. In fact, only a section of this form needs to be translated since the other sections are available in all languages, despite the different practice put in place by Member States by requiring the translation of the whole document;

Also the method of payment of court fees greatly differs between Member States. Some of them allow for electronic payment via bank transfer or credit card, but others often require payment in cash at the court, which entails additional costs for the party concerned for travel or hiring a lawyer. The Commission thus wants to oblige Member States to allow for distance payments, in order to reduce the costs of the procedure for the parties involved thus making the ESCP more effective;

Public Awareness

The Report concludes that the success of the Small Claims Procedure depends upon all relevant actors – consumers, businesses, courts – being aware of its existence and how it works. Unfortunately, 86% of citizens have never heard of the procedure and courts often ignore it. Consequently, practical assistance in undertaking the procedure may not be given as required under Article 11 of Regulation. In order to make information on the ESCP more effective, the Commission believes that additional resources should be invested in training programmes and for national jurisdictions to start specialise in cross-border litigation.

The Proposal

The Commission’s proposal for a Regulation would amend the current Regulation to address the issues identified in the review as follows:

Threshold for Filing an Application

The threshold for filing an application under the Small Claims Procedure under Article 2(1) would be increased from current level of €2000 to all claims under €10,000 making the procedure applicable to about 50% of cross-border business disputes. This will mainly benefit SMEs but also consumers, as a larger number of claims previously excluded from the Regulation could be litigated at reduced costs and length.

Territorial Scope

Article 2(2) of the ESCP Regulation would be amended to extend the territorial scope of the Regulation making it available to all the claims as long at least one of the following elements is found a different Member States from that of the court seized by the parties:
• the domicile or habitual residence of the parties;
• the place of performance of the contract;
• the place where the facts on which the claim is based arose;
• the place of enforcement of the judgment;
• the court or tribunal with jurisdiction.
However, the proposal would also expressly exclude some matters from the scope of application of the procedure, namely:
• the status or legal capacity of natural persons;
• rights in property arising out of a matrimonial relationship, maintenance obligations, wills and succession;
• bankruptcy, proceedings relating to the winding-up of insolvent companies or other legal persons, judicial arrangements, compositions and analogous proceedings;
• social security;
• arbitration;
• employment law;
• tenancies of immovable property, with the exception of actions on monetary claims; or
• violations of privacy and of rights relating to personality, including defamation.
The amendment would result in allowing consumers and undertakings to use the procedure in situations that are currently outside the scope of the Regulation.

Procedural Changes

The proposal would introduce the following changes to address the procedural shortcomings highlighted in the Report:

1. Amendments to Articles 8 and 9 to impose an obligation on national courts and tribunals to use distance communication technology such as videoconferencing or teleconferencing, for oral hearings and the taking of evidence unless one of the parties expressly requests to appear before the judge in person;

2. Amendments to Article 13 giving electronic means of communication the same value as postal services for the service of application on the defendant, service of judgement on the claimant and on the defendant. In order to guarantee the parties’ procedural rights, these documents will be served electronically only on a party who expressly accepts this in advance.

3. For all the other communications, electronic means attested by an acknowledgment of receipt will be the rule, if foreseen by national procedures and agreed by the parties;

4. A new Article 15a would be inserted into the Regulation imposing a cap on court fees. Court fees would not be allowed to exceed 10% of the value of the claim, excluding interests, expenses and disbursements.

5. The new Article 15a allows Member States to maintain minimum court fees for the procedure in order to deter the filing of frivolous application, provided this fee does not exceed €35;

6. Under a new Article 15a(2) Member States would be be obliged to ensure that the parties are permitted pay the court fees by means of distance payment methods, including bank transfer and credit or debit card on-line payment system.

7. A revised Article 21(2) would limit translation costs to section 4.3 of the certificate of enforcement of the judgement - as this is the section contains the substance of the judgement, there is no need to translate the whole document;

Review of a Judgement

The proposal would also amend the current rules to introduce minimum standards for the review of a judgement under Article 18 to address the situation where the defendant did not know about the proceedings against them and thus could not exercise their right of defence.

The current rules allow the defendant to apply for the review of the judgement given in the ESCP if they did not receive the claim form or the summons to an oral hearing, when the service was not timely enough to enable him to prepare his defence or if he was prevented from action due to force majeure.

The amendment will clarify the right to apply for a review by setting a clear time framework: the defendant will be able to apply within 30 days from the day he was effectively acquainted with the substance of the judgement and was able to react.

The Commission has introduced this amendment to ensure consistency between the ESCP Regulation and the Maintenance Regulation (Regulation (EC) No 4/2009 on jurisdiction, applicable law, recognition and enforcement of decisions and cooperation in matters relating to maintenance obligations), since the two texts pursue the same objective despite being formulated differently.

Member State Obligations

Article 11, 24 and 25 are amended imposing an obligation on Member States to provide the Commission with information on court fees and methods of payment for the ESCP, as well as of the availability of practical assistance to the parties, and the Commission's obligation to make such information publicly available.

Next Steps

This proposal for a Regulation will now go to the European Parliament and Council with a view to adoption under the ordinary legislative procedure (former co-decision).