Spanish Government approves first draft for the implementation of the Collective Redress Directive

The Spanish Government's first draft bill to implement the EU Collective Redress Directive was published on 9 January 2023. The draft is consistent with the Directive but includes comprehensive regulation of collective actions (injunctive and redress actions), with a particular focus on redress actions. While the rules for injunctive actions are not significantly different from the current ones, the proposed rules for redress actions will change Spanish mass litigation dramatically.

Main elements of the proposal

• The draft implementation act sets out an opt-out system for redress actions, i.e. consumers represented in the action will be bound by the decision unless they expressly opt out. An opt-out system is already in place in Spain but has not been successfully applied due to scarce and insufficient regulation. 
  Although the opt-out mechanism is the general rule under the draft bill, it also stipulates that, as an exception and depending on the specific circumstances, the court may decide – but is not obliged – to accept a redress action on an opt-in basis. This shall only be possible if considered more efficient and each represented claim amounts to at least €5,000. The draft does not set any specific criteria for the ‘efficiency’ test, so that this will remain a point of discussion until there is consistent case law from the Spanish courts.
• To manage the process and all relevant information, the draft bill introduces a specific electronic tool, to be managed by the qualified entity submitting the claim. Through the tool, consumers can effectively opt out of redress actions and preserve their individual rights. The tool will also ensure, in general, that any relevant information on the status of the claim is communicated rapidly to consumers concerned. 
  In addition, the Spanish Consumer Affairs Ministry is supposed to set up a public register on collective actions, for certified collective actions (see below) to be public knowledge. The register should also help courts dealing with individual claims, so that they can ask individual claimants whether they wish to withdraw their pending individual claims and join the collective action.
• There are comprehensive rules on the certification phase, where the court must assess whether certain prerequisites are met. In particular, the court must review (i) adequacy of representation issues, such as the qualified entity’s legal standing to bring redress actions (see below); (ii) the appropriateness of any third-party funding received for the action; and (iii) commonality issues. The draft states that "the commonality requirement is met if, in accordance with the substantive law applicable to the action, [the court considers that] it will be possible to determine the infringing conduct, the collective damages sought and the causal link between these, without the need to take into account factual or legal aspects which are specific to each represented consumer".
  The certification decision is subject to appeal and proceedings are stayed until the appeal is resolved. If the court certifies the collective redress action, it must clearly define the subject matter of that action.
• The draft also opens the door for a system of successive actions, where in the first instance a defendant’s alleged liability is the only subject for discussion, while proving and quantifying specific loss or harm is left for a second phase of the proceedings.
• Only consumer associations which meet certain requirements will be qualified entities with legal standing to file collective actions. The draft bill extends the Directive’s requirements for legal standing for cross-border collective actions to consumer associations which file national collective actions. Those are supplemented with additional transparency requirements which apply in Spain under consumer protection regulations. 
  While the draft bill includes sufficient mechanisms for courts to double-check that the plaintiff is a qualified entity, eligibility is extended to any consumer association (and not only the few long-standing consumer associations with legal standing for collective action under current regulations). Very notably, the draft legislation also extends the legal standing to bring collective actions to the Consumer Affairs Ministry and consumer protection agencies of Spanish regional governments and local councils. This may significantly increase litigation incentives for those Government agencies with enforcement powers.
• The draft also includes detailed rules on preclusion, so that only individuals that opt-out from collective actions can subsequently file their own individual claims, and on the binding effect of decisions on certified collective actions.  
• Plaintiffs are allowed to request access to sources of evidence. The draft provision on this procedural tool replicates the Directive which, in turn, is very similar to that included in Directive 2014/104/EU on certain rules governing actions for damages for infringements of competition law provisions, which to date has resulted in limited discovery in Spain in practice.
• Jurisdiction for collective actions will lie with the Courts of First Instance in the place where the defendant has its registered office in Spain or, if registered elsewhere, where it has commercial premises. In practice, this may concentrate collective actions in a few big cities, particularly Madrid and Barcelona, where most large Spanish companies have their registered office.
• Under the draft provisions, court decisions on collective actions are appealable at the Court of Appeal and later the Spanish Supreme Court (admissibility at the Supreme Court will not be subject to the sort of certiorari process that currently applies to second appeals for individual cases). First instance decisions subject to appeal cannot be enforced in the interim.
• The draft includes specific rules on enforcement, distinguishing between monetary and non-monetary relief. 

• Where group members have been determined, monetary compensation is to be paid by defendants directly to every beneficiary of the decision. Where specific beneficiaries have not been determined (as will generally be the case), defendants must deposit a lump sum with the court and the plaintiff will arrange compensation payments to beneficiaries. The defendant may be ordered to deposit further funds if these are insufficient. Once the time limit for enforcement has elapsed, any remaining amount will be paid back to the defendant, i.e. no cy pres doctrine shall apply.

• In cases of non-monetary compensation, defendants must directly comply with the award at the risk of severe sanctions in case of failure to comply.

• Finally, the draft allows for settlements in collective actions subject to judicial approval. Courts can only approve settlements after confirming that consumers’ rights to individual compensation are protected. This includes monitoring any litigation funders’ profits from settlements. Where a settlement is approved in a collective action that has been certified, it is binding for all consumers in the group. If a settlement is achieved and approved by the court before the collective action is certified, consumers must be granted a time limit to opt out of the settlement. Otherwise, they are bound by it.

Next steps

The draft now needs to be approved by the Council of Ministers (probably in February, after public consultation) before discussion and enactment by the Parliament. The law should be approved by the end of June.