Collective Redress within the European Union
The European Commission (the “Commission”) first published proposals for a European-wide collective redress procedure in November 2008. While anxious to avoid importing what it considered to be the excesses of the U.S. class action procedure into European law, the Commission had been keen to address perceived barriers faced by individual consumers in obtaining effective and affordable redress in the context of mass claims, both in national and cross-border contexts. Responses to these early proposals suggested that while member states acknowledged the existence of problems in this area, they were divided on how to tackle them.
In February 2011 the Commission published a consultation paper, “Towards a coherent European approach to collective redress”, identifying a first set of common legal principles which should apply to any new initiative in this area. Response to that consultation was again mixed. However, and although the European Parliament (the “Parliament”) initially expressed doubt that action was needed at EU level, a non-binding recommendation was published on 11 June 2013 (the “Recommendation”), which aimed to ensure “a coherent horizontal approach to collective redress in the European Union without harmonising Member States’ systems”. Member states were asked to implement appropriate measures within two years, so by 26 July 2015.
The Recommendation invited member states to implement domestic procedures to provide a mechanism enabling consumers and businesses suffering loss and/or damage as a result of the infringement of rights granted by EU law to bring collective proceedings against defendants, which should be “fair, equitable, timely and not prohibitively expensive”. The Recommendation also identified a number of areas in which collective actions would be particularly valuable, including consumer protection, competition, environment protection, protection of personal data, financial services legislation and investor protection.
In May 2017 the Commission issued a Call for Evidence seeking evidence on how the Recommendation was being implemented in practice. The review considered not only experiences of collective actions but also situations where collective redress could have been appropriate but was not sought, in order to obtain views on the effectiveness and efficiency of collective action procedures.
The Commission’s report was published at the end of January 2018 and will have been disappointing reading for the advocates of a consistent approach across the EU. Although compensatory collective redress was found to be available in 19 member states, in over half of them it was limited to specific sectors, and mostly to consumer claims. Only Belgium, Denmark, Lithuania, the Netherlands, Portugal and the UK had taken a horizontal approach in their legislation, allowing for collective compensation proceedings across all areas. Nine member states did not provide any means by which claimants could collectively claim compensation in mass harm situations as defined by the Recommendation. The Commission therefore considered that although the Recommendation had achieved its aim of inspiring discussions across the EU about collective redress, it had resulted in only limited development of new legislation and access to collective redress mechanisms remained very unevenly distributed across the EU.
A New Deal for Consumers: "Representative action, the European way"
Against this background, in April 2018, the Commission proposed new legislation to bolster consumers’ rights within the EU. After many months of discussion and deliberation, on 22 June 2020, the text of the draft “Directive on representative actions for the protection of the collective interests of consumers” (2018/0089 (OCD)) (the “draft directive”) was agreed and adopted by the Council and the European Parliament (the “Parliament”) on 30 June 2020.
When it finally comes into force, the draft directive will effectively introduce a right of collective redress across the EU. It will require member states to put in place procedures by which “qualified entities” will be able bring representative actions to seek injunctions, damages and other redress on behalf of a group of consumers who have been harmed by a trader who has allegedly infringed EU law. However, the draft directive is likely to remain controversial, the process being alien to the jurisprudence of some member states, who may be concerned that the procedure could encourage a more litigious culture.
The representative action envisaged under the draft directive has a limited scope.
- The infringement for which representative proceedings may be brought must relate to a limited set of European directives and regulations on consumer protection, set out in Annex I to the draft directive, along with their national implementing measures. Those directives and regulations concern general consumer protection rules, such as the rules on unfair terms in consumer contracts, unfair B2C practices and misleading advertising, as well as sector-specific consumer rules.
- A representative action may only be brought by a “qualified entity”, which must be designated as such by the member state. To be designated as a qualified entity, entities must comply with criteria relating to independence, transparency, be non-profit making and have a legitimate interest in consumer protection. Most are likely to be public authorities and consumer organisations. Qualified entities may be designated as such generally or on an ad hoc basis for the purpose of bringing a particular action. Each member state will be obliged to designate at least one qualified entity locally.
- In addition, member states will have to designate, in advance, specified qualified entities which are able to bring cross-border representative actions. This will allow qualified entities from several member states to bring one single set of proceedings before the court of one member state to address an infringement spanning several jurisdictions. A list of these qualified entities will be maintained by the European Commission.
- A representative action may only be brought on behalf of consumers. The draft directive provides for both an opt-in and an opt-out system. However, consumers who do not habitually reside in the member state in which an action is brought would only become part of the represented group by opting in to the proceedings.
- Actions may only be brought against traders, i.e. natural or legal persons acting in relation to their trade, business, craft or profession. This includes corporates which are both consumer-facing and those which are not.
Qualified entities will be able to apply for two types of measures through their representative action:
- injunctive relief, which may consist of provisional or definitive measures to cease an infringement, as well as an order for the trader to publish the decision finding an infringement
- other redress, including compensation, repair, replacement, price reduction, contract termination or reimbursement.
The draft directive does not prohibit third party funding but instead restricts its use. For instance, member states must ensure that conflicts of interest between funder and claimants are prevented. They must also take steps to ensure that any third party funding does not impact on the protection of the consumers’ interests, including by ensuring that decisions taken by the qualified entity are not unduly influenced by the funder or that the action is not funded by a competitor of the defendant. The draft directive further provides that the courts will be required to assess compliance with these limitations and will be able to take appropriate measures, if necessary.
The draft directive sets out a procedure for the approval by the court or relevant authority for the settlement of collective claims, permitting qualified entities and defendant traders to settle disputes pursuant to a settlement agreement which will be binding on all consumers concerned. This is potentially of considerable benefit to traders, who may be able to settle disputes involving large numbers of consumers more quickly and easily and in a more cost-effective manner than would be the case if each claim had to be resolved individually.
Finally, the draft directive sets out several procedural measures by which to frame the representative action.
- The unsuccessful party will be required to bear the costs of the proceedings, in accordance with national law. Consumers will not be required to pay cost orders except in exceptional circumstances.
- Qualified entities will have to publish information regarding all the representative actions with which they are involved, clearly on their website, and must keep the consumers concerned abreast of relevant developments. Traders will, at their own cost, have to inform consumers of adverse judgments against them.
- Courts must be given the power to order that evidence should be disclosed by the defendant trader or third party, where the qualified entity has presented reasonably available evidence sufficient to support the representative action and has requested the disclosure of further evidence by the trader or another person. Such disclosure must be ordered in accordance with local procedural rules.
- Final decisions handed down in representative actions and relating to the existence of an infringement may be relied upon as evidence in other actions seeking redress for the same infringement and against the same trader.
- Member states will have to ensure that, where a representative action has been commenced, any applicable limitation periods in relation to other potential claimants are suspended or interrupted.
- Member states will be required to set procedural costs at a level so as to not prevent qualified entities from effectively exercising their right to bring a representative action.
It will be left to member states to formulate local rules of procedure within the parameters set out above, although nothing in the draft directive will prevent member states from adopting or maintaining any other provisions aimed at protecting collective consumer interests at a national level. In this context it seems that the EU Commission has not considered the risk of forum shopping, both for a forum with the lowest requirements for a qualified entity and for a forum with the lowest procedural conditions for initiating a collective action. However, EU-wide standards in these respects, beyond those discussed above, have not be proposed and would in any event be difficult to enforce.
The draft directive must now be formally endorsed by the Council and Parliament – this is likely to take place in the Autumn - following which a final vote at the plenary session of the Parliament will take place, probably in December 2020. The draft directive will then be published in the Official Journal of the EU and come into force 20 days later. Member states will then have two years in which to implement it into national legislation, with a further six months for the new processes to come into effect, meaning that widespread collective redress procedures are unlikely to be available before 2023 at the earliest.