(Photo: Reuters)
(Photo: Reuters)

The European Union will pave the way for private individuals to file class action lawsuits against companies that are found to be fixing prices but will put safeguards in place to avoid a mirror image of the US' litigation culture.

In draft rules set to be unveiled by EU Competition Commissioner Joaquin Almunia on 11 June, potential victims in sixteen Eurozone countries will be able to sue for damages, from any company that is seen to have fixed prices, in any market.

The countries that are being given the greenlight include Britain, Germany, France, Spain, Italy and Poland.

Regulators around the world have either settled with a number of banks that fixed or colluded to rig benchmark interbank lending rates, such as Libor.

EU watchdogs are also investigating a handful of energy companies for allegedly fixing oil prices.

While these are large scale probes, there are a number of other alleged price-fixing scandals, occurring in the energy markets.

The draft proposal will set out common standards and minimum requirements in a bid to harmonise differing class action lawsuit legislation in different countries, say media agencies who have seen the report.

In Europe, large scale private lawsuits are rare because of fractured cross border legislation, while in the US is a much more common occurrence.

However, in a bid to avoid opening the floodgates to potential claims and erroneous lawsuits, the draft proposal will contain a set of safeguards.

Among the draft rules will be stoppers against law firms and third party funders hunting for potential claims and claimants.

It will also include rules against abusive litigation and massive payouts.

In lieu of claim hunters, Brussels will only allow state-appointed non-profit bodies or public agencies to act on behalf of the individuals.

The draft rules propose an opt-in principle, which enables the claimants to decide whether they would like to join forces with other victims to file a class action lawsuit.

Brussels will also force a "loser pays principle", which will mean strict regulation on contingency fees - the amount put aside to prove that the party in a lawsuit can pay the other side's costs should it lose.

It will also place a ban on punitive damages in order to deter frivolous and abusive lawsuits.

The relevant EC spokesperson wasn't immediately available for comment.