Almost exactly 6 months ago, we reported in this blog that the European Commission was exploring ways it might expand consumer access to justice, and in particular increase the availability of “class” or collective civil litigation across the EEA, while avoiding what it characterizes as US style excess in class litigation. One proposal is to introduce a new law allowing collective litigation led by representative consumer associations across a number of economic sectors (the “Proposed Directive”). In this blog we summarise the key elements of the Proposed Directive, a copy of which is available here. For more details, our submission from late June in the European Commission’s public consultation on the Proposed Directive is available here
Collective redress can be an effective tool both for consumers and companies looking to address harm arising from infringement of law and regulation. However, the European Commission rightly recognises the risk that collective redress via private litigation mechanisms could be high-jacked by entities looking to profiteer, disrupt legitimate commercial operations in their own interests or who simply fail to act with any understanding of consumer interests or the law.
Taking this into account, the Proposed Directive provides a litigation framework which, in the view of the European Commission at least, balances the interests of all sides of the argument. The main elements of the Proposed Directive are the following:
- Safeguards to prevent abusive litigation: Only qualified non-profit entities designated by Member States may bring a representative action. Such an entity must have a legitimate interest in securing compliance with the law and a direct relationship between its objectives and the rights afforded by the law.
- Scope of application: The subject matter of the representative actions covered by the Proposed Directive is only infringements of the provisions of EU law listed in Annex 1 to the Proposed Directive that harm or may harm the collective interests of consumers. The Proposed Directive would not affect rules establishing contractual and non-contractual remedies available to consumers.
- Opting In and Opting Out: Member States will be allowed to introduce opt in and/or opt out collective settlement. The European Commission recommends opt in collective structures only, which may also be a safeguard to prevent abusive litigation as it is important that common consumer interest is represented in cases of this type and that expanded classes with inherent conflicts in interest are not permitted simply because representative bodies wish to inflate either the value of the claim or their own profile in pursuit of the case.
- Compensation and other redress measures: Different types of measures may be sought, including interim or definitive measures to stop and prohibit a trader’s practice, if it is considered an infringement of the law, and measures eliminating the continuing effects of the infringement such as redress orders and declaratory decisions. Redress would be in the form of compensation, repair, replacement, price reduction, contract termination or reimbursement of the price paid, as appropriate. A declaratory decision may be justified where the quantification of individual redress is complex due to the characteristic of harm suffered.
- Funding and cost recovery: The Proposed Directive prohibits funding by commercial operators looking to disrupt competitor activities by funding strategic litigation against them. Qualified entities seeking a redress order have an obligation to be transparent about their source of funding. In addition, Member States would have an obligation to take measures to ensure that procedural costs do not hinder the ability of qualified entities to bring representative actions, such as limiting applicable court fees and providing access to legal aid, or public funding for this purpose.
- Settlement: Member States may provide for a qualified entity and a trader who have reached a settlement regarding redress to apply for the court or administrative authority’s approval.
- Effect of a final decision: The decision of a Member State’s relevant authority would establish irrefutably the infringement in a representative action against the same trader for the same infringement before their national courts. In addition, such a decision would be considered by another Member State’s relevant authority as a rebuttable presumption that infringement has occurred.
- Disclosure and evidence: If a qualified entity presents sufficient evidence to support the representative action and indicates further evidence that is in the control of the defendant, Member States must ensure that the relevant authority orders the defendant to present such evidence, subject to the applicable Union and national rules on confidentiality.
The Proposed Directive is yet to be approved by the European Parliament and the Council. If adopted (which is far from certain), the Proposed Directive would not replace existing national mechanisms but instead provide for an addition, specific representative action mechanism. Whether that mechanism would actually work in practice to achieve the European Commission’s aims remains to be seen.