SHE Matters: EU Representative Actions Directive

Member States of the EU are currently implementing the EU Directive (Directive EU 2020/1821) on representative actions for the protection of consumers.

This Directive requires Member States to provide a new mechanism for collective redress and injunctions to protect consumers against breaches of a range of EU legal instruments (specified in Annex 1 to the Directive). These items of legislation mainly relate to consumer rights and product safety, as regards products and services likely to be of particular interest to consumers, but in addition, EU legislation on misleading advertising is also included. This throws the field open to litigation on a range of, for example, environmental and similar claims that might be argued to be misleading. The scope of relevant legislation is also open to expansion, as Annex 1 to the Directive could be added to each time the EU adopts a new piece of legislation in the field of consumer protection. Furthermore, the Directive itself permits Member States to decide to apply the mechanism they enact in order to give effect to the Directive in other areas of law.

Member States have until 25 December of this year to transpose the Directive with the new rules they adopt due to come into force in June 2023.

At that time the Directive will replace an earlier and more limited Directive dating from 2009 which provides for the granting of injunctions against certain unlawful trading practices.

The Directive does not require Member States to harmonise their own existing systems of collective redress, but rather to establish a new mechanism to meet the requirements of the Directive, in addition to any existing provision.

The Directive has also been drawn up with a view to Member States avoiding what are seen as the excesses of US class actions litigation. Accordingly, actions for the enforcement of the relevant EU legislation by way of collective redress will need to be brought by a “qualified entity” designated for the purpose (either ad hoc for a particular action, or more generally) by the Member State in a relevant jurisdiction. However, qualified entities established in one Member State may be authorised to bring cross-border proceedings in other Member States, and Member States must mutually recognise qualified entities from other Member States for this purpose.

In relation to cross-border representative actions, qualified entities must be independent non-profit-making consumer protection organisations meeting criteria laid down in the Directive and any supplementary criteria laid down by the Member State. They will therefore need to show that they are independent of non-consumer interests, such as law firms, or competitors of the traders from whom redress will be sought.

Member States are also obliged to adopt criteria for designating qualified entities for domestic proceedings that are consistent with the objectives of the Directive. (They could adopt the same criteria as just mentioned for cross-border proceedings). They are also obliged to designate on request any entity which meets the relevant criteria.

Additionally, public bodies may be designated as qualified entities including those already designated for the purpose of the 2009 Directive.

There are also restrictions on the use of third-party funding, and the provisions on redress for consumers are similar to those under existing EU consumer protection law and do not appear to encompass punitive damages.

There are provisions on disclosure similar to those in common law jurisdictions, and the Directive provides for costs to be paid to the winner, but individual consumers cannot be ordered to pay costs unless, exceptionally, the costs were incurred as a result of the individual consumer’s intentional or negligent conduct. This exception therefore appears to refer only to “wasted” costs.

Member States have considerable discretion as to how representative actions may be brought, for example, whether by judicial or administrative proceedings in particular cases. They also have discretion on a number of other matters, in particular whether to provide an opt-in or opt-out mechanism. That would determine the way in, and the extent to which consumers could decide whether or not to be represented by a particular qualified entity in an action and whether or not to benefit from the outcomes of such an action.

Member States are required to ensure that the costs of proceedings do not prevent qualified entities from sing their rights to bring representative actions, for example by public funding, limitation of court costs, or permitting qualified entities to charge consumers a modest entry fee as a condition of participation.

Much will evidently depend on how the Directive is implemented in particular Member States. However, it seems clear that what is envisaged is not a bonanza for claimants’ lawyers, but rather an extension of a system of intervention by public or quasi-public bodies to ensure enforcement of consumer protection legislation in the public interest, but which will also provide a means of redress for individual consumers.

A number of Member States already allow group actions, or similar proceedings on terms which may be more favourable to litigants and their advisors than what is envisaged under the Directive, and it is not clear what the extent of the practical impact of the Directive will be in such states. However, the Directive will undoubtedly cause Member States to review their mechanisms for collective redress.

Although the UK will, in consequence of Brexit, not be implementing the Directive itself, the Directive will undoubtedly have some impact on UK companies if they carry on business in EU Member States.

Generally, it would appear to be the best policy for affected businesses to take proactive steps to ensure that they are in regulatory compliance, as that is likely to be more cost-effective than having to defend litigation, even in the relatively restrained form envisaged by the Directive.