A European right of collective redress is on its way with the formal approval of the EU Directive on Representative Actions

On 24 November 2020, the European Parliament formally endorsed the “Directive on representative actions for the protection of the collective interests of consumers”. This was the final stage in the approval of this long-awaited European measure and the Directive (EU) 2020/1828 (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. 

Once implemented by the member states, the Directive may have a significant impact on the balance of power in consumer redress and is likely to facilitate the current trend of increased commercialisation of consumer rights and actions in Europe. However, the Directive remains controversial, as the process, or at least parts of it, are alien to the jurisprudence of some member states.

Scope

• The Directive will enable representative actions to be brought for the infringement of a limited set of European directives and regulations which concern, in the main, general consumer protection rules, such as the rules on unfair terms in consumer contracts, unfair B2C practices and misleading advertising.
• A representative action may only be brought by a designated “qualified entity”, which, for the purpose of cross-border actions, 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 representative action may only be brought on behalf of consumers. The Directive provides for both an opt-in and an opt-out system, although non-resident consumers 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.

Available redress

• Qualified entities shall be able to apply for injunctive relief, including order to cease an infringement, and redress aiming to compensate for or repair the damage caused. Punitive damages will not be permitted.

Funding

• Third party funding of representative actions is permitted but its use is restricted and must comply with specific conditions set out in the Directive.

Settlement

• Rules are provided to enable a court or relevant authority to approve a binding settlement of a claim in a representative action. However, the details of how any settlement will be implemented are left to member states and the attractiveness of a settlement may depend on the relevant provisions.

Procedural matters

• The Directive includes provisions relating to the costs of proceedings, publication of information, disclosure of evidence, the application of limitation periods and other procedural matters. However, it is left to member states to formulate local rules of procedure, taking the requirements of the Directive into account. While this may result in a degree of difference between member states and potential forum shopping, EU-wide standards in these respects have not be proposed and would in any event be difficult to enforce.

For more detail on this development and the operation of collective redress across 19 international jurisdictions, please see our global review of collective redress, which includes a chapter on the EU Directive on representative actions.