The European Commission is currently grappling with how best to strengthen enforcement of EU consumer law, via its "New Deal for Consumers" package. A central concern for the EU is how to provide better access to group style litigation while avoiding what it characterizes as U.S. style excess in class litigation. One current proposal would allow collective litigation in Member State courts led by representative consumer associations across a number of economic sectors (the "Proposed Directive").

In this alert, we discuss some of the key features of the Proposed Directive. Our full submission to the European Commission's recent public consultation on the Proposed Directive can be accessed here.

Which claims will the Proposed Directive cover?

Only infringements of the EU laws listed in Annex 1 to the Proposed Directive that harm or may harm the collective interests of consumers are covered. That list covers a wide variety of laws, including the main existing pieces of consumer protection legislation relevant to the consumer goods and retail sector. However, in our view, some of the laws listed will be unable to be enforced effectively on behalf of collective interests. For example, some of the laws are targeted at individual interests that will require specific pleading to their facts and that cannot be remedied by any aggregate model of damages, and other laws will have extensive conflicts of interest for individual claimants if the scope of certification is too wide.

Could the Proposed Directive lead to abusive litigation?

Under the Proposed Directive only qualified non-profit entities designated by Member States will be able to bring a representative action. Such entities will be required to have a legitimate interest in securing compliance with the law and a direct relationship between their objectives and the rights afforded by the law in question.

Our experience of defending actions pursued by consumer associations across the EU is that the resourcing and competence of these associations varies. There is a risk that litigation will be based on an ill-informed understanding of the law, pursued in the interest of the profile of the organization (or competitor companies) or pursued by an organization without sufficient capacity and experience.

What would be the effect of a final decision?

The Proposed Directive purports to cover both claims for a determination of infringement as well as claims for compensation. It provides that the former would establish irrefutably the infringement for subsequent legal actions against the same trader for the same infringement. In addition, such a decision would be considered by another Member State’s relevant authority as a rebuttable presumption that infringement has occurred.

The Proposed Directive purports to cover both claims for a determination of infringement as well as claims for compensation. It provides that the former would establish irrefutably the infringement for subsequent legal actions against the same trader for the same infringement. In addition, such a decision would be considered by another Member State’s relevant authority as a rebuttable presumption that infringement has occurred.

What are the other main elements of the Proposed Directive?

  • Opting in and opting out: Member States will be allowed to introduce opt in and/or opt out collective settlement, although the European Commission recommends opt in collective structures only. Opt out structures may incentivize abusive litigation and result in expanded classes with inherent conflicts of interest due to representative bodies wishing to inflate either the value of the claim or their own profile.

  • Funding and cost recovery: Entities seeking a redress order have an obligation to be transparent about their source of funding. It is unclear how this will work in practice or the degree of due diligence a court likely will carry out before authorizing proceedings.

  • Settlement: Where an entity and a trader have reached a settlement, Member States may oblige them to apply for the court or administrative authority's approval.

  • Disclosure and evidence: If a qualified entity presents sufficient evidence to support the representative action and indicates that further evidence 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 EU and national rules on confidentiality. Defendants do not appear to have a reciprocal right to seek evidence in the possession of the claimant entity.

Will the Proposed Directive become law?

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 additional specific representative action mechanism. Whether that mechanism would actually work in practice to achieve the European Commission’s aims remains to be seen.

How does the Proposed Directive affect you?

Litigation risk and exposure where regulatory breaches occur would likely increase should the Proposed Directive become law. Effective management of this litigation risk will require a strategic approach coordinated across jurisdictions that accounts for the possibility of claims being made while regulatory investigations remain ongoing.

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