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New EU rules on consumer representative actions

Posted on 11 January 2021

On 24 November 2020, the European Parliament formally adopted a directive on representative actions for the protection of the collective interests of consumers. The Directive was published in the Official Journal on 4 December 2020 and came into force on 24 December 2020. EU Member States must implement the Directive into their national laws by the end of 2022 with a further six months for the new processes to come into effect. On this basis, the earliest that representative actions may be brought under the Directive is likely to be in mid-2023 (though it could be sooner if Member States implement the Directive earlier). Whilst this is a reasonable distance away, with other priorities to consider and address in the meantime, it would be prudent to keep an eye on the developments and implementation of the Directive across the EU.

In summary, the Directive seeks to address concerns in relation to the existing collective remedies mechanisms and injunctive processes for European consumers where a trader has allegedly infringed EU law. The Directive aims to modernise and harmonise the approach to these mechanisms and processes across the EU, while providing appropriate safeguards to avoid abusive litigation. The biggest risk to businesses dealing with EU consumers as a result of the Directive is the increased likelihood of, and consequential financial and reputational exposure to, collective redress claims.  

As a result of Brexit, the Directive will not of course be implemented in the UK. However, there is, and will remain, intense interest in litigation of mass consumer claims.

While the recent Supreme Court ruling in Mastercard Incorporated v Merricks has been heralded as an important milestone in collective actions in the UK, the bespoke opt-out regime in the UK currently only applies to competition law claims. Given the developments in the EU, and the Supreme Court's recognition that opt-out collective actions are an important deterrence tool when it comes to consumer harm, it will be interesting to see whether the UK ultimately decides to broaden the scope of its own opt-out regime.

The data protection case of Lloyd v Google, brought as a representative action under rule 19.6 of the England and Wales Civil Procedure Rules, and now subject to appeal to the Supreme Court, has shown that it is not a straightforward matter, under existing domestic law, to bring mass consumer claims on an "opt out" basis, but there is clearly a desire and a need in some circumstances to be able to bring representative actions. The Directive will continue to push a ball that is already in motion by simplifying the process for consumers in the EU, and it may well have indirect influence on the development of the law on representative actions in the UK.

Added to this, Article 80(2) of GDPR (which will carry over into the UK GDPR - the UK's retained EU law version of the GDPR) offers the possibility of law being made to permit opt-out collective actions for GDPR infringements. Although the UK has not legislated to bring this provision into effect, the outcome of a recent government consultation on the matter is awaited.

What are the key elements of the Directive?

What is the scope of the Directive?

The Directive provides for the possibility of cross-border representative actions for breaches of a broad list of EU consumer laws applicable to goods or services including financial services (including insurance); travel and tourism (such as passenger rights in relation to travel air, rail, sea and bus); energy; health (such as medical devices and cosmetic products); telecommunications; data protection; supply of digital content and digital services, and sale of consumer goods.

Who can bring a representative action?
  • A representative action may be brought by a "qualified entity", meaning any organisation or public body representing consumers' interests in an EU country. Essentially, a qualified entity may act on behalf of a group of consumers to obtain redress on the consumers' behalf.
  • There are certain criteria for "qualified entities", which include: having a legitimate interest in consumer protection; being of non-profit status; and being transparent by making certain information publically available, such as in relation to funding, and their organisational structure. These criteria may differ between individual EU countries for applicable domestic group actions.
  • The European Commission will maintain a list of cross-border qualified entities. Most are likely to be public authorities and consumer organisations.
Who can an action be brought against?
  • Representative actions under the Directive will only be possible against traders, i.e. natural or legal persons acting in relation to their trade, business, craft or profession.
What remedies are available for consumers?
  • Qualified entities may be able to apply for two types of measures through their representative action:
    • Injunctive Relief (interim or final), including publication of decisions and corrective statements. An injunction will be available, including where the qualified entity does not prove actual loss or damage for individual consumers nor any "intent or negligence" by the applicable trader.
    • Redress measures including compensation, repair, replacement, price reduction, contract termination or reimbursement of the price paid (as appropriate and as available under EU or national law). To avoid misuse, any damages should not be punitive, which will be of light relief to traders. However, it should be noted that any remedies awarded in a representative action will be without prejudice to any additional remedies available to consumers under other EU or national laws.
Determining the consumer 'group'
  • 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 where an action is brought would only become part of the represented group by electing to opt into the proceedings.
What protections are there for traders and how are matters settled?
  • Whilst the Directive's core purpose is to enhance and strengthen consumer protections, it does also seek to avoid unnecessary litigation. To enable this, courts or administrative authorities can:
    • assess admissibility of a specific representative action in accordance with the Directive and national law, and
    • dismiss manifestly unfounded cases at the earliest possible stage of the proceedings in accordance with national law.
  • The Directive includes a settlement procedure. Where qualified entities and traders settle a dispute, for example through a settlement agreement, this will be binding on the qualified entity, the trader and the individual consumers concerned.
  • Additionally, it is important to note that Member States may make their own rules, whereby those individual consumers concerned by a representative action and subsequent settlement can elect to decline or accept being bound by the settlement agreement. Depending on the nature and substance of such rules applicable in that Member State, the appeal and incentivisation for the parties to settle may vary.
  • In general, all parties involved in any action should welcome the settlement procedure, as it should provide traders and consumers (through the qualified entities acting on their behalf) with a swifter means of resolving a dispute, saving the time and cost often necessitated and incurred as a result of progressing legal proceedings to trial.
What is the position on third party funding for representative actions?
  • Third party funding is permitted for representative actions for redress measures if allowed under the applicable national law, provided that (i) there is no conflict of interest between the funder and claimants, and (ii) the third party's 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 courts may assess the funding arrangement where "justifiable doubts arise" as to compliance and may order disclosure from the qualified entity of "a financial overview of the sources of funding used". Additionally, the court may take appropriate measures to refuse or change the funding or reject the qualified entity's standing in the action. 
Costs and Procedural matters

Costs. The common "loser pays" principle applies whereby the unsuccessful party pays the successful party's costs in accordance with the conditions and exceptions provided for in applicable national law. The Directive also makes clear that individual consumers will not have to pay costs of the proceedings except in exceptional circumstances (for example, where the proceedings arose due to the individual consumers' intentional or negligent conduct).

Publicly Available Information. In addition to maintaining publication of certain information, qualified entities must also publish (including on their website) information in relation to representative actions brought, including their status and outcomes. Further, the trader should inform consumers (at the traders' own cost) of any judgments or settlements. However, if the qualified entity has to provide the consumers with such information (as may be required under an individual EU country's laws), the trader should not also need to inform consumers.

Effect of Final Decision. A final decision in a representative action concerning an infringement by a trader can be used as evidence in another action where a party seeks redress against the same trader for the same infringement.

Limitation Period. Member States must ensure that where a representative action has started, any limitation periods are suspended or interrupted where that limitation period would otherwise apply to other consumers that may be able to join the representative action.

Disclosure of Evidence. Both the qualified entity and the defendant trader can request the court grant disclosure of further evidence from each other or a third party. Any disclosure must be ordered in accordance with the applicable national law.

Next Steps

Given that the intention of the Directive is to enhance and facilitate the rights of consumers, any traders selling or providing goods or services to consumers should be mindful of the increased chances of litigation in and across the EU.

Meanwhile, our domestic law continues also to explore, whether by statute or by common law, the extent to which similar consumer collective redress regimes should exist in the UK.

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