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.
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.
The new Directive on representative actions for the protection of the collective interests of consumers
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 EU institutions agreed on a “Directive on representative actions for the protection of the collective interests of Consumers” (the “Directive”). The Council and Parliament formally endorsed the Directive on 4 and 24 November, respectively, and the Directive was published in the Official Journal on 4 December 2020. Following its entry into force 20 days later, EU member states will have two years to implement the Directive and a further six months to apply the new provisions.
The Directive effectively introduces 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 Directive remains controversial, as the process, or at least parts of it, are alien to the jurisprudence of some member states.
The representative action envisaged under the 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 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 special and 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. Member states enjoy a wide discretion with regard to the criteria that qualified entities must meet for the purpose of bringing domestic representative actions. However, to be designated as a qualified entity for the purpose of bringing cross-border representative actions, entities must comply with criteria relating to independence, transparency, be non-profit making and have a legitimate interest in consumer protection. Each member state will be obliged to designate at least one qualified entity locally. A list of all qualified entities will be maintained by the European Commission. Most are likely to be public authorities and consumer organisations. For the purpose of bringing a particular domestic representative action, qualified entities may also be designated on an ad hoc basis.
- A representative action may only be brought on behalf of consumers. The 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 shall 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; and
- other redress, including compensation, repair, replacement, price reduction, contract termination or reimbursement, but not punitive damages.
The 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 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 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, in principle, be binding upon the trader, the qualified entity and 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. However, the member states may set out rules according to which individual consumers concerned in an action and subsequent settlement may decline to be bound by any settlement agreed. The details are left to the member states and the attractiveness of a settlement will very much depend on the relevant provisions.
Finally, the 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 the costs except in exceptional circumstances.
- Qualified entities will have to publish information regarding all the representative actions in which they are involved, in particular 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. Similarly, the defendant trader will be able to request evidence from the qualified entity and third parties. 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 used as evidence in other actions seeking redress for the same infringement and against the same trader.
- Member states 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 are 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 the member states to formulate local rules of procedure within the parameters set out above, although nothing in the 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 institutions have 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.